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18. November 2019, 22:03 |
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The Consumption Effects of the Disposition to Sell Winners and Hold on to Losers (with B. Loos and M. Pagel) |
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Using a large sample of transaction-level data on all security trades and holdings as well as all spending and income from an online retail bank, we study the effects of a fictitious sale initiated by the bank that changed the displayed purchase prices of all mutual funds in individuals' portfolios. We find that individuals are more likely to sell fictitious winners, i.e., funds that are displayed as winners under the new purchase price, but are losers under the actual purchase price. Beyond affecting individual's disposition to sell winners and hold on to losers, we also document that individual consumption increases in response to realizing fictitious capital gains. To the best of our knowledge, this is the first study documenting a causal link between purchase prices and trades using observational data and finding that the disposition to sell winning investments has real effects in terms of affecting individual consumption. That said, as we show, the consumption response may be brought about by investors being confused about what their actual capital gains are. Thus, our finding that the subjective feeling of investment success and fictitiously changed capital gains affect consumption is informative for the marginal propensity to consume out of stock market wealth.
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06. Oktober 2018, 00:46 |
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The Consumption Response to Capital Gains: Evidence from Mutual Fund Liquidations (with M. Pagel and A. Previtero) |
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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.
Paper Download |
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06. Oktober 2018, 00:45 |
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Who Falls Prey to the Wolf of Wall Street? Investor Participation in Market Manipulation (with C. Leuz, M. Muhn, E. Soltes and A. Hackethal), R&R requested at Management Science |
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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.
Paper Download Media Coverage: Manager Magazin |
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06. Oktober 2018, 00:37 |
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Client Involvement in Expert Advice - Antibiotics in Finance?, (with A. Hackethal, C. Laudenbach and A. Weber) |
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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 |
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Inference in Difference-in-Differences Studies with Observational Data Using Non-Parametric Tests (with S. Bunnenberg) |
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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, 00:33 |
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Does Feedback on Personal Investment Success Help? (with L. Urban and S. Ahlswede) |
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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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© Steffen Meyer