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Photo: Adelheid Rutenburges

Photo: Adelheid Rutenburges

Photo: Adelheid Rutenburges

Photo: Adelheid Rutenburges

Research focus

The research of the professorship for finance focuses on behavioral and social finance and on methods of quantitative financial risk management. Current research projects investigate the impact of attention on the risk taking of retail investors, peer effects in investment decisions, the impact of dependency structures on asset pricing, and determinants of corporate risk management decisions.

Personal website

Current projects

'COVID-19 and Investor Behavior'

Finance Research Letters, 101717


This project investigates the impact of a pandemic on investors’ trading activities. We show that investors significantly increase their trading activities as the pandemic unfolds, both at the extensive and at the intensive margin. We observe that the number of investors who first open an account with the broker increases, while at the same time established investors increase their average trading activities. A 100% increase in COVID-19 cases is associated with a ~14% increase in the average weekly trading intensity. The increase in trading is especially pronounced for male and older investors and affects stock and index trading. The increase is largest during the period from February 23rd to March 22nd. CFD trading and the trading of crypto currencies are less affected. Following the 9.99%-percentage drop of the Dow Jones on March 12th, investors significantly reduce the usage of leverage across all asset classes, except cryptocurrencies.

Working Paper

'Attention Triggers and Investors' Risk-Taking'
(c) Florian Stolle

Revision requested at the Journal of Financial Economics


Financial support by the Fritz Thyssen Stiftung (Az. is gratefully acknowledged. 

This project investigates the impact of individual attention on investors’ risk taking and short selling. We analyze a large, novel sample of trading records from a European brokerage service that allows its customers to trade contracts-for-differences (CFD), and sends standardized push messages on recent stock performance to its client investors. The advantage of this sample is that it allows us to isolate the "push" messages as individual attention triggers, which we can directly link to the same individuals' risk taking. A particular advantage of CFD trading is that it allows investors to make use of leverage, which provides us a pure measure of investors' willingness to take risks that is independent of the decision to purchase a particular stock, and short selling. Leverage is a major catalyst of speculative trading, as it increases the scope of extreme returns, and enables investors to take larger positions than what they can afford with their own capital. Short selling provides important flexibility for investors to adjust their portfolio to reflect their changing views. We show that investors execute attention-driven trades with higher leverage, compared to their other trades, as well as those of other investors who are not alerted by attention triggers. Attention traders also take short positions more frequently.  Working Paper

In a second paper, we also investigate the impact of attention on portfolio diversification. We show that the effect of push messages on investors' portfolios critically depends on whether investors hold a stock in their portfolio at the time of the push message. Investors who do not hold the stock in their portfolio when receiving the message hold better diversified portfolios 24 hours after the push message, while investors who hold the stock in their portfolio at the time of the message decrease their diversification. Hence, we highlight two opposing channels for the impact of attention triggers on risk taking. Whereas (i) attention triggers induce investors to take more idiosyncratic risk, (ii) these triggers also stimulate portfolio diversification.

Amongst others, our project complements studies that explore the reason behind retail investors' mistakes. Hence, the results of our project have several practical implications for investment management. Specifically, it allows investors and investment advisors to understand the impact of attention on individuals' trading and portfolios. Using this knowledge, advisors can provide guidance to their customers to improve their trading outcomes. For example, our results suggest that purposefully sent push messages may help investors overcome the common mistake of holding under-diversified portfolios. As such, the use of push messages may have stronger effects on investors' portfolios than other types of financial education.

'Social Interactions and (Financial) Decision-Making'
(c) Florian Stolle


Financial support by the Deutsche Forschungsgemeinschaft (PE 2525/5-1) is gratefully acknowledged.

This project studies the impact of social interactions on investors' financial decision-making and risk taking. In particular, we study preferences for dependencies between payoffs for own prospects in relation to payoffs of peers' prospects and the implications of such dependencies for investors' risk taking.

'Managerial personality traits and selective hedging'


Financial support by the Frankfurter Institut für Risikomanagement und Regulierung (FIRM) is gratefully acknowledged.

„[...] the most significant risk management failures in recent history have their roots in psychology, and [...] the practice of risk management can be improved by incorporating an explicit psychological dimension.“ (Hersh Shefrin, 2016)

In contrast to theoretical predictions of optimal corporate hedging policies, firms engage in speculative behavior and change the composition of their derivative portfolios on a regular basis. As a direct consequence, hedging ratios show significantly higher volatility than expected, taking into account the relevant fundamentals. The literature refers to the adaption and timing of hedging transactions based on market views as selective hedging. As of today, "the widespread practice of managers speculating by incorporating their market views into firms' hedging programs ("selective hedging") remains a puzzle" (Adam et al., 2017). This project studies how risk managers' personality traits influence their decision-making processes and affect firms' selective hedging behavior.

'Joint Volatility Risk and the Equity Options Market'


This project studies the impact of joint volatility risk on the return of equity options. Contrary to traditional option valuation models, market makers in the equity options market require risk premia to compensate them for the risks and costs of holding large and risky net long positions. We document that equity options with a propensity to jointly experience extreme volatility with the market (EVD) are traded at a premium. The effect is economically meaningful as a one percent increase in EVD is associated with a 7.1% p.a. increase in put option returns and a 3.2% p.a. increase in call option returns.

'Shareholder activism: international evidence'


The project investigates drivers and effects of shareholder activism by hedge fund and non-hedge fund investors using an international data set of 2,701 activist engagements across 44 countries over the period 2008 to 2019. We show that shareholder activism has sharply increased over the last years, and spread internationally, with currently about 50% of all engagements outside North America. Among investor types, non-hedge fund investors account for about one third of all engagements.

Our results show that target firms of hedge funds are, on average, smaller and more profitable with lower market-to-book ratios and growth rates compared to target firms of non-hedge funds. Hedge funds and non-hedge funds are most successful in enforcing demands and implementing change in Europe and North America. Overall, our findings for North America and Europe indicate that non-hedge fund activists are catching up to hedge funds and achieve comparable results. In Asia-Pacific, we observe lower abnormal returns and lower buy-and-hold returns. Overall, abnormal stock returns around engagement announcements are higher for hedge funds than non-hedge funds in Asia-Pacific and North America, but higher for non-hedge funds in Europe.

'Dark Triad Managerial Personality and Financial Reporting Manipulation'


Every now and then, we observe corporate accounting scandals that annihilate billions of market capitalization. Examples of these are numerous, with the Wirecard scandal being the most recent, and earlier scandals including Enron and WorldCom. In general, corporate fraud is a topic that draws constant attention from the public, regulatory bodies, and academia. However, most of the time, the attention starts too late, namely after the costs for shareholders, creditors, and employees, and possibly society of a large fraud case are already in the millions. 
These large scale accounting scandals often involve top managers who are responsible for initiating, maintaining, and hiding these fraudulent practices for long periods of time. For any individual to successfully keep up a long-ranging fraud, it can be argued, requires certain predispositions. Unethical decision-making, lying for one's own gain, a sense of superiority and lack of guilt and remorse are all consequences of being a dark-triad personality. According to psychology research, such traits are particularly prevalent among fraud offenders. 
In this project, we use theory and measures from personality psychology to investigate the effects of management personality traits on fraudulent accounting practices. We find a strong positive relationship between dark triad personality traits of managers and accounting manipulation. Our results indicate that for a one-unit increase in the dark triad score, the odds of engaging in fraudulent accounting increase by a factor of 2.49. 
We also find that traditional risk control mechanisms such as internal audit departments staffed with internal personnel and whistleblower regulations do not easily mitigate these practices. However, having an independent and outsourced internal audit function helps to successfully curb accounting fraud. Specifically, such an externally staffed audit function leads to a roughly 60% decrease of the negative impact of managers with dark triad personality on companies' accounting practices. Consequently, having externals perform the task provides a safeguard against such manipulation. This finding has strong practical implications as it provides support for outsourcing such activities rather than keeping them in-house. 

Working Paper

Selected publications

Selected publications (Link to Google Scholar

Koester, H.; Pelster, M. (2017): 'Financial penalties and bank performance', Journal of Banking and Finance 79, 57-73.

Pelster, M.; Breitmayer, B.; Hasso, T. (2019): 'Are cryptocurrency traders pioneers or just risk-seekers? Evidence from brokerage accounts', Economics Letters 182, 98-100. (Media coverage: yahoo finance,, pressetext)

Pelster, M.; Hofmann, A. (2018): 'About the fear of reputational loss: Social trading and the disposition effect', Journal of Banking and Finance 94, 75-88.

Pelster, M.; Schertler, A. (2019): 'Pricing and issuance dependencies in structured financial product portfolios', Journal of Futures Markets 39, 342-365.

Pelster, M.; Vilsmeier, J. (2018): 'The determinants of CDS spreads: evidence from the model space', Review of Derivatives Research 21, 63-118.

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