Steffen Meyer
 

My current research projects and working papers

Kategorien: Alle Research

06. Oktober 2018, 00:49

Measurement Error in Imputed Consumption (with L. Kueng, S. Baker and M. Pagel)

Because of limitations in survey-based measures of household consumption, a growing literature uses an alternative measure of consumption commonly referred to as `imputed consumption'. This approach utilizes annual snapshots of household income and wealth from administrative tax registries to calculate household consumption as the residual of the household budget constraint. In this paper we use transaction-level retail investment data to assess the measurement error that can result in imputed consumption due to intra-year changes in asset values and composition. We show that substantial discrepancies between imputed and actual spending can arise due to trading costs, asset distributions, variable trade timing, and volatile asset prices between two annual snapshots. While these errors tend to be quantitatively small and centered around zero on average, we demonstrate that they vary across individuals of different types and income levels and are highly correlated with the business cycle.

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06. Oktober 2018, 00:47

Fully Closed: Individual Responses to Realized Capital Gains and Losses (with M. Pagel)

We use transaction-level data for portfolio holdings and trades as well as account balances, income, and spending of a large sample of retail investors to explore how individuals respond to paper versus realized capital gains and losses. To identify the effects of realized gains and losses, we exploit plausibly exogenous mutual fund liquidations. Specifically, we estimate the marginal propensity to reinvest out of one dollar received from a forced sale event when the investor either achieved a capital gain or a loss relative to his or her initial investment. Theoretically, if individuals held optimized portfolios, the marginal propensity to reinvest out of forced liquidations should be 100% independent of realizing a gain or a loss. Individuals should just reinvest all of their liquidity immediately into a fund with similar characteristics. Empirically, individuals keep a share of their newly found liquidity in cash, save it, consume it, or reinvest it into different funds, stocks, or bonds. Moreover, individuals reinvest 89% if the forced sale resulted in a capital gain, but only 46% in the event of a loss. Such differential treatment of gains and losses is inconsistent with active rebalancing or tax considerations but consistent with mental accounting and the idea that individuals treat realized losses differently from paper losses.

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06. Oktober 2018, 00:46

The Consumption Response to Capital Gains: Evidence from Mutual Fund Liquidations (with M. Pagel and A. Previtero)

Using a large sample of transaction-level data on all asset holdings, spending, and income from a German retail bank, this paper explores how individual consumption responds to realized capital gains. Our identification strategy exploits mutual fund closures, which are arguably exogenous to individual characteristics. We estimate the marginal propensity to consume (MPC) out of one dollar received from a forced sale event and find that it is approximately 30%. We explore how the MPC varies in age and income as well as over the business cycle and across interest rate regimes. We find a higher MPC for low-income investors, which appears consistent with standard life-cycle portfolio-choice models, though we do not find any differences in the MPC for young versus old investors. We also find that the MPC to be lower in recessions and decreasing in interest rates, which is surprising from a standard model perspective.

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06. Oktober 2018, 00:45

Who Falls Prey to the Wolf of Wall Street? Investor Participation in Market Manipulation, (with C. Leuz, M. Muhn, E. Soltes and A. Hackethal)

Manipulative communications touting stocks are common in capital markets around the world. Although the price distortions created by so-called “pump-and-dump” schemes are well known, little is known about the investors in these frauds. By examining 421 “pump-and-dump” schemes between 2002 and 2015 and a proprietary set of trading records for over 110,000 individual investors from a major German bank, we provide evidence on the participation rate, magnitude of the investments, losses, and the characteristics of the individuals who invest in such schemes. Our evidence suggests that participation is quite common and involves sizable losses, with nearly 6% of active investors participating in at least one “pump-and-dump” and an average loss of nearly 30%. Moreover, we identify several distinct types of investors, some of which should not be viewed as falling prey to these frauds. We also show that portfolio composition and past trading behavior can better explain participation in touted stocks than demographics. Our analysis offers insights into the challenges associated with designing effective investor protection against market manipulation.

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Media Coverage:
Manager Magazin

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06. Oktober 2018, 00:43

Fresh Air Eases Work – The Effect of Air Quality on Individual Investor Activity, (with M. Pagel)

This paper shows that air quality has a significantly negative effect on the willingness of individual investors to sit down, log in, and trade in their brokerage accounts controlling for investor-, weather-, traffic-, and market-specific factors. In perspective, a one standard deviation increase in fine particulate matter leads to the same reduction in the probability of logging in and trading as a one standard deviation increase in sunshine. We document this effect for low levels of pollution that are commonly found throughout the developed world. When individual investor trading is seen as engagement in a cognitively-demanding task similar to office work, our findings suggest that the negative effects of pollution on white-collar productivity may be much more severe than previously thought. To our knowledge, this is the first study to demonstrate a negative impact of pollution on a measure of white-collar work productivity at the individual level in western countries rather than historically polluted places.

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Media Coverage:
Washington Post
Morning Call

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06. Oktober 2018, 00:39

Google Search Volume and Individual Investor Trading, (with D. Kostopoulos)

We relate Google search volumes, proxying for negative economic expectations or concerns of households (FEARS), to individual investor trading to deepen the understanding of how, when and who is affected by sentiment. The trading data comes from a large German discount brokerage covering more than 100’000 investors over ten years. We find FEARS to significantly affect individual investor trading, particularly during low sentiment periods. When expectations are bad, investors trade more and rather sell securities. In the long run, trading on FEARS drives investors out of security markets. We find the effects to be particularly pronounced for less sophisticated investors.

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06. Oktober 2018, 00:37

Client Involvement in Expert Advice - Antibiotics in Finance?, (with A. Hackethal, C. Laudenbach and A. Weber)

We use minutes from 17,000 financial advisory sessions and corresponding client portfolio data to study how active client involvement affects advisor recommendations and portfolio outcomes. We find that advisors confronted with acquiescent clients stick to their standards and recommend expensive but well diversified mutual fund portfolios. However, if clients take an active role in the meetings, advisors deviate markedly from their standards, resulting in poorer portfolio diversification and lower Sharpe ratios. Our findings that advisors cater to client requests parallel the phenomenon of doctors prescribing antibiotics to insistent patients even if inappropriate, and imply that pandering diminishes the quality of advice.

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06. Oktober 2018, 00:36

Inference in Difference-in-Differences Studies with Observational Data Using Non-Parametric Tests (with S. Bunnenberg)

Researchers use difference-in-differences models to evaluate the causal effects of policy changes. As the empirical correlation across firms and time can be ambiguous, estimating consistent standard errors is difficult and statistical inferences may be biased. We apply an approximate permutation test using simulated interventions to reveal the empirical error distribution of estimated policy effects. In contrast to existing econometric corrections, such as single- or double-clustering, this approach does not impose any parametric form on the data. In comparison with alternative parametric tests, this procedure maintains correct size with simulated and real-world interventions. Simultaneously, it improves power.

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06. Oktober 2018, 00:34

Fee-based Financial Advice (with B. Loos und A. Hackethal)

What happens when clients can choose between fee-only advice (no inducements) and inducement-based advice while the advisors and the lists for selecting recommendations remain the same? Our data from a unique field experiment allows answering this question while controlling for changes in the behavior of the demand and supply side. Sophisticated customers and those who should benefit the most from fee-only advice are most likely to obtain it. Fee-only advice leads to an increase in adherence, portfolio values, trading, and also has a positive effect on performance. This suggests that individual investors could benefit from new business models or regulation of the supply side.

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06. Oktober 2018, 00:33

Does Feedback on Personal Investment Success Help? (with L. Urban and S. Ahlswede)

In this natural field experiment with almost 2.000 customers of an online-broker we test what happens when investors receive feedback on their investment success in a monthly securities account report over a period of fifteen months.

An updated version will with extended results will be available soon.

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