Day 1: Thursday, 10.11.2022
Session 1: Behavioral Finance I
Chair: Prof. Dr. Andreas Walter
1. Mental Accounting and the Marginal Propensity to Consume
09:10am – 09:40am
Authors: René Bernard
Presenter: René Bernard,
Deutsche Bundesbank and Goethe University
Discussant: Thibault Cézanne
Abstract: This paper studies how consumers respond to unexpected, transitory income shocks and why. In a randomized control trial, I elicit marginal propensities to consume (MPC) out of different hypothetical income shock scenarios, varying the payment mode, the shock size, and the source of income. The results show respondents exhibit a higher MPC when exposed to a windfall paid out in cash or without any specification of the payment mode, respectively, compared to a windfall deposited in an instant-access savings account, suggesting consumers violate fungibility. Further, the MPC falls with the shock size, whereas it does not vary with the source of income. Using causal machine learning methods to explore treatment heterogeneity, I find that low liquidity, self-control problems, and a lack of cognitive sophistication contribute to MPC heterogeneity. The results are broadly in line with mental accounting theory.
2. Group Decisions and Asymmetric Payoffs: Risky Tax Avoidance in the Laboratory
09:40am – 10:10am
Authors: Eva Matthaei; Dirk Kiesewetter
Presenter: Eva Matthaei,
Freie Universität Berlin
Discussant: René Bernard
Abstract: This paper investigates the dynamics of group decisions on risky tax avoidance strategies in a laboratory experiment. To identify how groups reach consensus, we compare individual to group decisions in three scenarios. The first scenario allocates the payoffs from group decisions equally to all members of the group. The second and third scenarios introduce asymmetric payoffs as a new factor of group dynamics. In these scenarios, we distinguish asymme-try in the distribution of costs and benefits, i.e., either costs or benefits are shared unequally among group mem-bers. The introduction of asymmetric payoffs allows us to separate shared consequences and communication as key drivers of group decision-making. The separation of cost and benefit sharing further allows us to separately discuss three different reasons that have been suggested by prior research to cause differences between individual and group decisions, i.e. rationality, social responsibility, and conformity. The results of the study demonstrate that the magnitude of the difference between individual and joint tax avoidance is reduced by an asymmetric payoff allocation. Regardless of the distribution of profit, however, group unanimity decisions align with a strong preference for conformity among group members.
3. Bank Manager Sentiment, Loan Growth and Bank Risk
10:10am – 10:40am
Authors: Frank Brückbauer; Thibault Cézanne
Presenter: Thibault Cézanne,
University of Mannheim & ZEW
Discussant: Eva Matthaei
Abstract: We build a measure of the sentiment of bank managers from earnings press release documents. Using this measure, we present evidence on how banks' systematic over-optimism might affect the amount of credit that they supply to the real sector. Our empirical evidence suggests that decisions on the volume of new loans partially depend on past realizations of economic fundamentals, implying that loan growth and economic fundamentals might be systematically disconnected. Furthermore, we show that over-optimism on the part of bank managers spills over to their equity investors, who seem to interpret high bank manager sentiment as a positive signal for the risk associated with bank loan growth. Higher values of bank manager sentiment are associated with a weaker relationship between loan growth and the perceived riskiness of a bank.
Session 2: Economics
Chair: Prof. Dr. Peter Tillmann
1. Household Finance and Life Cycle Economic Decisions under the Shadow of Cancer
11:00am – 11:30am
Authors: Daniel Kárpáti
Presenter: Daniel Kárpáti
Swiss Finance Institute and University of Lugano
Discussant: Jennifer Rogmann
Abstract: I study the causal effects of life expectancy on financial, economic, and demographic decisions. My sample consists of individuals who undergo genetic testing for a hereditary cancer syndrome. Genetic testing randomizes tested persons into two groups. Those who test positive learn that they face a high risk of cancer and a shorter life expectancy. Those who test negative learn that their cancer risk is not elevated. The differences in outcomes between these two groups identify the effects of life expectancy. I find that life expectancy has a positive effect on wealth accumulation. Lower savings rates, safer portfolios, decreased labor supply, and different preferences for household composition explain lower wealth accumulation under reduced life expectancy.
2. Higher order risk preferences (indirectly) predict economic decisions
11:30am – 12:00pm
Authors: Yilong Xu, Maarten Boksem, Charles N. Noussair, Stefan T. Trautmann, Gijs van de Kuilen, and Alan Sanfey
Presenter: Dr. Yilong Xu
Utrecht University
Discussant: Daniel Kárpáti
Abstract: Economic theory predicts that individuals’ higher risk attitudes such as prudence and temperance are crucial for savings and investment decisions. Under expected utility, prudent individuals save more when their future income becomes more uncertain; temperate individuals prefer less risky investments in the presence of greater background risks. We elicit individuals’ (higher-order) risk attitudes using two methods and use the elicited (higher-order) risk preferences to predict economic decisions. We find that, in line with theory, the parameters of the decision tasks, such as the level of background risk and the uncertainty of future income strongly predict economic decisions. We also find some direct evidence that people with stronger elicited prudence preferences save more precautionarily as income uncertainty increases, but elicited temperance preferences do not seem to predict investment decisions as background risks increase. This may be because temperance is domain-specific or that the elicitation tasks may be too complex to allow extraction of reliable measures of temperance.
3. Inflation expectations and cognitive uncertainty
12:00pm – 12:30pm
Authors: Joscha Beckmann; Timo Heinrich; Jennifer Rogmann
Presenter: Jennifer Rogmann
FernUniversität in Hagen
Discussant: Dr. Yilong Xu
Abstract: This paper provides a new perspective on inflation expectation formation based on a representative sample of US households. In our information provision experiment, participants are provided with professional forecasts of different historic accuracy and of different complexity. Our novel experimental design allows us to assess the influence of cognitive uncertainty while controlling for the uncertainty associated with forecasts and priors. First, we find that in line with standard Bayesian updating, providing subjects with forecasts of lower historic accuracy lead to higher uncertainty of expectations and smaller updates. Second, in line with cognitive uncertainty, more complex forecasts can lead to smaller updates in expected inflation.
Session 3: Behavioral Finance II
Chair: Prof. Dr. Oscar Stolper
1. Investor Sentiment and Sell-side Research Quality
01:30pm – 02:00pm
Authors: Yangyang Chen, Kaizhao Guo , Jingshu Wen
Presenter: Jingshu Wen
University of Oxford
Discussant: Prof. Matthias Pelster
Abstract: We investigate whether investor sentiment affects sell-side analysts’ research quality. As institutional investors regard industry knowledge as the most important element of sell-side service, we use it to proxy for analysts’ research quality. Using textual analysis to measure the industry knowledge in Chinese A-share healthcare reports, we find that analysts with higher industry knowledge are more accurate and more likely to conduct independent research. After controlling for confounding factors, we find that when investor sentiment is higher, analysts’ research quality is significantly lower. Further analysis suggests that institutional investors reduce their demand for fundamental analysis during bubble periods, and that analysts cater to their clients’ time-varying demand by strategically adjusting their efforts.
2. Headline Curiosity
02:00pm – 02:30pm
Authors: Russell Golman; Jingyi Qiu
Presenter: Jingyi Qiu
University of Michigan, School of Information
Discussant: Jingshu Wen
Abstract: We analyze how curiosity drives news consumption. We apply NLP methods and test predictions of the information-gap theory of curiosity in the context of news consumption on WeChat. As predicted, we find that people are more likely to consume news when: 1) the headline raises a salient question; 2) it appears more important, e.g., because the headline was displayed in a higher position on the webpage; 3) the topics mentioned in the headline are more surprising, as measured by the KL-divergence of the distribution over topics referenced in the headline; and 4) the headline has lower valence.
3. Leverage constraints and investors' choice of underlyings
02:30pm – 03:00pm
Authors: Matthias Pelster
Presenter: Prof. Matthias Pelster
Paderborn University
Discussant: Jingyi Qiu
Abstract: This paper investigates the impact of a 2018 intervention by the European Securities and Markets Authority (ESMA) limiting the amount of leverage that investors can take on their trading activities. While it successfully reduced the leverage-usage, investors shifted their trading activities to riskier assets in the process, consistent with the idea that leverage-constraint investors substitute leverage with riskier securities. Thus, the intervention was not as effective as the reduction in leverage suggests. Consistent with the notion that risky investment strategies spread through the population, I find some evidence of a spillover effect to investors who are not affected by the regulatory intervention.
Session 4: Sustainable Finance
Chair: Prof. Dr. Andreas Walter
1. Every emission you create - every dollar you'll donate: The effect of regulation-induced pollution on corporate philanthropy
03:20pm – 03:50pm
Authors: Simon Xu; Seungho Choi; Raphael Jonghyeon Park
Presenter: Raphael Jonghyeon Park
Haas School of Business, UC Berkeley
Discussant: Dr. Marco Ceccarelli
Abstract: This paper investigates the role of charitable giving as a form of insurance by analyzing donations to nonprofits from philanthropic foundations associated with U.S. corporations that operate polluting facilities. Our empirical setting exploits the "close" attainment and nonattainment designation status of counties under the Clean Air Act as a source of exogenous variation in a firm's local pollution. Using regression discontinuity, we find that firms operating plants in close attainment counties pollute more and subsequently donate more to local nonprofits compared to those operating plants in close nonattainment counties. Firms maximize the insurance value of donations by using the most salient forms of charitable giving and reallocate donations to areas where they pollute the most. These donations are shown to insure the firm against negative stock price consequences by mitigating the market's negative reaction during the occurrence of adverse events. Overall, our evidence suggests that insurance-motives are a key determinant of polluting firms' participation in philanthropy.
2. Sustainability: Performance, Preferences, and Beliefs
03:50pm – 04:20pm
Authors: Valentin Luz; Victor Schauer; Martin Viehweger
Presenter: Victor Schauer
Ludwig-Maximilians-Universität München
Discussant: Raphael Jonghyeon Park
Abstract: Investors weigh financial and sustainability information for their investment decisions. However, evidence regarding the drivers of the individual investor’s weighting is limited. In this context, we examine the influence of investors’ sustainability preferences, the beliefs about others’ sustainability preferences (higher-order beliefs), the combined financial and sustainability performance of a firm, and the presentation format on investment decisions. To answer our research question, we conduct an experiment with a non-cooperative coordination game that incorporates investors' higher-order beliefs, offering a new framework for experimental asset markets. The results show that investors weigh positive sustainability information more strongly than negative sustainability information. In addition, strong higher-order beliefs lead to higher investments in firms that are perceived as more sustainable. We show that sustainability preferences and higher-order beliefs affect investment decisions in the same direction but are different concepts. Thereby, we contribute to the understanding of investors’ decision making in the context of sustainability.
3. Gender, performance, and promotion in the labor market for commercial bankers
04:20pm – 04:50pm
Authors: Marco Ceccarelli; Christoph Herpfer; Steven Ongena
Presenter: Dr. Marco Ceccarelli
Maastricht University
Discussant: Victor Schauer
Abstract: We investigate the role of gender in the U.S. labor market for commercial bankers. Using detailed banker level data from the U.S. syndicated loan market, we find that female bankers issue higher loan volumes than their male peers in the same institutions. Nevertheless, female bankers are under-represented among the more senior ranks and less likely to be promoted than their male counterparts even after controlling for a wide range of measures of performance and skill. The chance of promotion for female bankers is unevenly distributed across ranks. While women are more likely to be promoted at junior ranks, they are less likely to be promoted at higher ranks, consistent with a glass ceiling effect. These frictions in the labor market for bankers spill over into the capital market for borrowers. Importantly, we find that these patterns are concentrated in the early parts of the sample and weaken after a series of high profile discrimination lawsuits brought against banks.