Motivated by the idea to understand our current financial system and to contribute to a sustainable world, I investigate during my PhD questions regarding the subject of Sustainability and Financial Economics.
Asset Pricing - Finanzderivate und ihre Systemrisiken
Textbook for Undergraduate students on the subject of asset pricing and systemic risk. With M. Chesney, B. Maranghino-Singer, and L. Münstermann
Dieses Buch gibt eine vielseitige Einführung in die Welt der Finanzderivate. Es richtet sich insbesondere an Studenten der Wirtschaftswissenschaften, bietet aber auch interessierten Drittpersonen einen verständlichen Einstieg in die Thematik. Derivative Produkte sind allein schon aufgrund des enormen Volumens essentiell im heutigen Wirtschaftssystem. Dieses Buch behandelt sowohl die Funktionsweisen als auch die Einsatzmöglichkeiten der elementaren Derivate. Der theoretische Teil wird zudem jeweils mit Übungen abgerundet. Die Finanzkrise 2007/2008 hat jedoch gezeigt, dass mit diesen Produkten bisher unbekannte Systemrisiken verbunden sind. Deshalb betrachten wir Derivate auch aus einer kritischen Perspektive und analysieren damit verbundene Konzepte des aktuellen Wirtschaftssystems, wie zum Beispiel die Bedeutung von Wachstum. Konkrete Beispiele helfen dabei diese abstrakte Dimension besser zu verstehen.
Insbesondere die beiden folgenden Kapitel tragen meine Handschrift:
Research in Progress
Structured Finance and Correlation Risk
with M. Chesney (University of Zurich) and F. Fattinger (University of Melbourne)
We study the relation between the inherent complexity of structured products and their endogenous issuer margins. First, using a sample of 4,460 yield enhancement products (YEP), we document a shift towards more complex payoff structures. Margins for more complex products are twice as high relative to their less complex counterparts, while the former’s realized investor returns are lower and negative on average. We identify uncompensated correlation risk as the main mechanism behind this discrepancy. Second, we conduct a laboratory experiment to measure individuals’ willingness-to-pay for YEPs with varying levels of complexity. Our experimental findings provide a micro-foundation for our field results. We find that subjects systematically underestimate the embedded correlation risk of more complex products. The resulting relative overpricing is increasing in the underlying volatility and in subjects‘ overconfidence. Moreover, the willingness to invest in structured products is higher when the risk-free rate is low. In the face of unprecedented low interest rates and a rising popularity of YEPs, we argue that our findings are of direct policy relevance.
Mutual Funds and Risk Disclosure: Information Content of Fund Prospectuses
with T. Schäfer (University of Frankfurt)
In this paper, we shed light on the informational value of U.S. mutual fund risk disclosures by examining the qualitative content of funds‘ prospectuses. First, approximating a fund’s disclosed riskiness by the amount of risk disclosure, we find that funds inform extensively about their idiosyncratic risks and less about their systematic risks. Second, using methods from textual analysis, we document that around one-third of the variation in the content of funds‘ risk disclosure is fund-specific, while a substantial part of a fund’s risk disclosure is determined at the fund group level. Third, we show that regular updates of the disclosed risks have predictive power concerning funds‘ alphas, indicating that risk statements provide information in predicting returns in the cross-section.
Our results suggest that updates from outperforming funds provide valuable information about future performance, while we find a negative, less pronounced effect for underperforming funds. Finally, using an event study framework combined and relying on matching techniques, we find no significant changes in investors‘ behavior after the voluntary delivery of a simplified disclosure document, i.e., a summary prospectus, in addition to the full prospectus.
Mind the Gap: Nudging Investors towards Sustainable Investments
with F. Heeb (University of Zurich)
Sustainable investing is considered as a critical element for tackling global challenges. At the same time, there is a gap between private investors‘ intentions to invest sustainably and their investment decisions. Nudges that subtly influence decision processes of investors could be a promising tool to close this gap. While existing research on sustainable investment decisions considers private investors as a homogeneous group, we show that investment decision processes, and hence adequate nudges, depend on both the wealth level of an investor as well as on the type of investment. We develop a framework to analyze investment processes and show that these processes can be characterized by the available choice options, the frequency of choices and the interaction with financial intermediaries.