Stefan Palan founding member of the G53 Financial Literacy and Personal Finance Research Network07.12.2021
Platform researcher Stefan Palan was recently asked to become a founding member of the G53 Financial Literacy and Personal Finance Research Network (G53 Network). Founded by Annamaria Lusardi, the Director of the Global Financial Literacy Excellence Center (GFLEC) and a pioneer in financial literacy research, the G53 network aims to promote research into financial literacy and personal finance along the lines of - but in a more globalized manner than - an NBER research program. The G53 network is named after the JEL code for research into financial literacy and was - fittingly - started with 53 researchers.
New Paper on Market Reactions to Donald Trump’s Twitter News30.11.2021
Successful online workshop of the Austrian Working Group on Banking and Finance30.11.2021
The Institute of Banking and Finance organized the 36th workshop of the Austrian Working Group on Banking and Finance (AWG) on November 26 and 27, 2021. Initially scheduled to be held in Graz, the COVID-19 pandemic once again necessitated an online format. Despite the virtual meeting, the workshop was a great success. With a total of 30 scheduled presentations and 49 participants, the workshop was one of the most successful yet.
The organizers wish to thank all participants and invite them to next year's workshop in Klagenfurt.
FiRe part of first large-scale crowd research project in finance
Platform researchers Stefan Palan and Andrea Schertler are participants in the Finance Crowd Analysis Project, the first crowd-sourced community paper in Economics/Finance. Together, more than 160 research teams have analyzed a dataset of 720 million trades and crafted a joint paper reporting the results. Learn more in the video below or in the working paper.
Robert Merl successfully defends PhD03.11.2021
Today Robert Merl successfully defended his PhD thesis "Insider Trading Regulation and Short Selling". Robert's doctoral studies focused on the role of insider trading regulation in financial markets.
Robert's first published paper reviews the literature of experimental studies on insider trading and its regulation (Merl, R., Forthcoming. "Literature review of experimental asset markets with insiders", Journal of Behavioral and Experimental Finance, 100596). In his second paper, Robert studies the interaction between insider trading, short-selling and regulation prohibiting both of these activities (Merl, R., Stöckl, T., Palan, S., 2021. "Insider trading regulation and shorting constraints. Evaluating the joint effects of two market interventions.", SSRN discussion paper #3890173). In his third paper, titled "Insider trading regulation and trader migration", Robert studies the effects of regulation banning informed trading in one market when traders can migrate to another market that trades the same asset. A working paper version of this third paper is currently being prepared.
We congratulate Robert on his achievement and wish him all the best for his future!
New review paper on insider trading experiments31.10.2021
FiRe launches new event series28.10.2021
FiRe conducted the first event in a new series on October 20, 2021: the "FiRe Forum". More than 240 people attended this panel discussion, which was held in German and entitled "Corona-Pandemie und die Mutation der Bankwirtschaft" (“Corona pandemic and the mutation of the banking sector”). Andrea Schertler welcomed Markus Schwaiger, Director of the Department for Financial Stability and the Supervision of Less Significant Institutions at the Oesterreichische Nationalbank (Austrian National Bank), Gerda Holzinger-Burgstaller, Chairwoman of the Management Board of Erste Bank Österreich, and Stefan Pichler, Professor at the Institute for Finance, Banking and Insurance at the Vienna University of Economics and Business.
The panelists reflected on the pandemic and agreed that the banking industry was more an anchor of stability during the pandemic than a liability, and that it played an important role in sustaining economic activity through its branch infrastructure. Banks could fulfil this role because banking sector resilience improved substantially after the Global Financial Crisis. For the coming years, the panelists see digitalization, such as Big Data applications, FinTech competition and regulatory uncertainties, as key issues. Furthermore, the low interest rate environment, the increasing need to comply with Environmental, Social and Governance (ESG) criteria, and the aftermath of the Corona pandemic will put further pressure on profitability and cost efficiency.
Josef Fink completes PhD with top grade07.05.2021
Today Josef Fink completed his doctoral studies with a dissertation defense that the committee graded "Sehr gut", the top grade in the Austrian grading system. Josef's dissertation, titled "Experiments on the Post-Earnings-Announcement Drift", was also graded "Sehr gut". In its core, it is made up of three papers studying the phenomenon of stock prices drifting in the direction of the surprise component of a company's announced earnings for up to four quarters following the initial announcement.
In his first paper, titled "A Review of the Post-Earnings-Announcement Drift" and published in the Journal of Behavioral and Experimental Finance, Josef provides the most comprehensive (by a wide margin) review of the literature on the PEAD phenomenon to date. In his second paper, titled "Earnings Autocorrelation and the Post-Earnings-Announcement Drift", Josef studies the role of autocorrelation in the earnings process on the drift. In his third paper, titled "Trading Frictions and the Post-Earnings-Announcement Drift", Josef investigates the role of frictions (i.e., a short-selling ban and transaction fees) on the drift.
We congratulate Josef and express our pride of him for this achievement!
New Paper on Measuring Liquidity of Cryptocurrency Markets09.02.2021
The growing importance of bitcoin for payments and investments is dependent on an efficient exchange of bitcoin for other currencies on cryptocurrency exchanges. The number of exchanges has exploded, making it difficult for investors to select an exchange for trading and hedging. While trading has become relatively frequent in cryptocurrencies the liquidity of these markets is difficult to determine.
In this paper, platform members Alexander Brauneis, Roland Mestel and Erik Theissen as well as their co-author Ryan Riordan from Queen’s University, investigate the efficacy of low-frequency transaction based liquidity measures to describe actual (high-frequency) liquidity. The authors show that the Corwin and Schultz (2012) and Abdi and Ranaldo (2017) estimators outperform other measures in describing time-series variations, irrespective of the observation frequency, trading venue, high-frequency liquidity benchmark, and cryptocurrency. Both measures perform well during high and low return, volatility and volume periods. The Kyle and Obizhaeva (2016) estimator and the Amihud (2002) illiquidity ratio outperform when estimating liquidity levels. These two estimators also reliably identify liquidity differences between trading venues. Overall, the results suggest that there is not yet a universally best measure but there are reasonably good low-frequency measures.
The paper was presented at the FiRe Research Day in December 2019 and has recently been accepted for publication in The Journal of Banking and Finance.
Brauneis, A., Mestel, R., Riordan, R., Theissen, E. (2021). How to measure the liquidity of cryptocurrency markets?, Journal of Banking and Finance, Vol. 124, DOI: https://doi.org/10.1016/j.jbankfin.2020.106041
Florian Stöckler joins research platform19.01.2021
Florian Stöckler recently joined the research platform after becoming a PhD student at the Institute of Banking and Finance under the supervision of Andrea Schertler.
Markus Höfler joins research platform18.01.2021
Markus Höfler recently joined the research platform as a PhD student under the supervision of Andrea Schertler. Markus previously completed his Master in Business Administration also at the University of Graz. Besides his doctoral studies, Markus works in the trade finance area of a private company in the metals industry.
In his doctoral thesis, Markus plans to study prices of precious and industrial metals in crisis periods. In particular, he intends to research these metals' price determinants and bond hedging properties as well as the existence of feedback trading.
New review paper on the post-earnings-announcement drift 13.12.2020
Josef Fink's comprehensive review "A review of the Post-Earnings-Announcement Drift" has been published in the Journal of Behavioral and Experimental Finance. In this paper, Josef summarizes the literature around this most prominent of mispricing phenomena. He concludes that - while there is evidence for a number of different factors - an all-encompassing explanation remains out of sight.
Successful online workshop of the Austrian Working Group on Banking and Finance01.12.2020
The Institute of Banking and Finance and the Institute of Finance organized the 35th workshop of the Austrian Working Group on Banking and Finance (AWG) on November 26 and 27, 2020. Initially scheduled to be held in Graz, the COVID-19 pandemic necessitated an online format. Despite the virtual meeting, the workshop was a great success. A total of 22 scientists from 12 institutions and 4 different countries presented and discussed their research on topics like portfolio optimization and performance, credit risk, central bank policy and market quality, sustainability and behavioral insights. With about 40 participants, the workshop also attracted an audience that was at least as big as many previous workshops that had been held offline.
The organizers wish to thank all participants and invite them to next year's workshop, which is scheduled to be held, in Graz, on November 26 and 27, 2021.
New paper on the effect of option listings on prices of discount certificates 16.11.2020
The paper "Listing of classical options and the pricing of discount certificates” by FiRe member Andrea Schertler has been accepted for publication in the Journal of Banking and Finance.
In this paper, Andrea investigates whether new listings of EUREX options affect the prices of discount certificates that are replicated with precisely such a newly listed option. An event study provides a significantly negative average abnormal margin change on the day on which the EUREX option of the replication portfolio is listed. The papers models the abnormal margin changes as a function of hedging cost, unhedgeable risk, and price pressure. Higher hedging costs, higher opportunity costs from unhedgeable risk, and lower intra-EUWAX competition lead to significantly lower abnormal margin changes. The paper interprets the effect of intra-EUWAX competition as a price pressure effect. Economically, rebalancing and opportunity costs from unhedgeable risk are the most important drivers of abnormal margin changes when EUREX options are listed.
New Paper on Portfolio Optimization based on Qualitative Information 13.11.2020
Generating accurate estimates of expected asset returns is a mammoth task in portfolio optimization and especially prone to estimation errors, which negatively influence portfolio allocation decisions. While the classical mean-variance approach solves the portfolio optimization as a deterministic problem, the model by Black and Litterman (BL; Black, Litterman, 1991, Black, Litterman, 1992) accounts for uncertainties in the input data and allows the inclusion of statements regarding absolute returns. In this paper platform members Roland Mestel and Ulrich Pferschy, co-authored with Eranda Cela and Stephan Hafner, extend the traditional BL model by allowing qualitative views, in particular ordering information among expected asset returns.
The authors assume investor views to be stochastic and present a new and competitive approach for translating expected asset return rankings into quantitative estimates of expected asset returns for portfolio optimization. The new estimator for the posterior expectation of returns is computed by applying an importance sampling technique. Using data from the EUROSTOXX 50 and the S&P 100, respectively, the authors empirically evaluate the forecast quality of their new approach in comparison to existing, but methodologically different, approaches from the literature and assess the performance of their model in a mean-variance portfolio context. They find that the new approach mostly achieves the highest predictive power, irrespective of the dataset, the assumed level of accuracy of the ordering information, and mostly irrespective of the investor’s confidence in the qualitative view, even though the improvement resulting from their approach is moderate. They observe a similar behaviour in the context of portfolio performance analysis.
Çela, E., Hafner, S., Mestel, R., Pferschy, U, (2021). Mean-variance portfolio optimization based on ordinal information, Journal of Banking and Finance, Vol. 122, DOI: https://doi.org/10.1016/j.jbankfin.2020.105989.
New paper on the momentum effect03.11.2020
FiRe-researcher Erik Theissen, together with Can Yilanci, a PhD student at the University of Mannheim, has recently published a new working paper studying the momentum effect. Risk-adjusted momentum returns are usually estimated by constructing momentum portfolios and then running a full-sample regression of their returns on a set of factors. This approach implicitly assumes constant factor exposure of the momentum portfolio. However, momentum portfolios are characterized by strong turnover and time-varying factor exposure. The paper proposes to estimate the risk exposure at the stock level. The risk-adjusted return of the momentum portfolio in month t then is the actual return minus the weighted average of the expected returns of the component stocks (stock-level risk adjustment). Based on evidence from the universe of CRSP stocks, from sub-periods and size-based sub-samples, from volatility-scaled momentum strategies (Barroso and Santa-Clara, 2015) and from an international sample covering 22 developed countries, Erik and Can conclude that the momentum effect may be much weaker than previously thought.
The paper has received prominent coverage on the webpage institutionalinvestor.com. Institutional Investor is a leading international business to business publisher, focused primarily on international finance.
Link to the paper: https://papers.ssrn.com/abstract_id=3710496
New event series - FiRe Research Seminar27.10.2020
We are glad to announce that we are inaugurating a new event series, the FiRe Research Seminar. To be held once a month during term time, the seminar will be an online lecture series scheduled on selected Mondays, from 4pm through 5.30pm. After a lecture of 30-45 minutes, we will have at least another 45 minutes for discussion. We are proud to present the lecturers for the winter term 2020/21:
Florian Ederer (Yale School of Management)
Date: 16.11.2020, 16.00-17.30 CET
Title: Common Ownership, Competition, and Top Management Incentives
Bill Megginson (University of Oklahoma)
Date: 30.11.2020, 16.00-17.30 CET
Title: Dissecting the Listing Gap: Mergers, Private Equity, or Regulation?
Ryan Riordan (Queen's University)
Date: 25.01.2021, 16.00-17.30 CET
Title: Informed Trading
More information on all seminars can be found on the meetings page.
New paper studying the post-earnings-announcement drift23.10.2020
The team of FiRe-researchers Josef Fink, Stefan Palan and Erik Theissen has recently published a new working paper stuying the post-earnings-announcement drift (PEAD). In the first experimental study of this pricing anomaly, the three researchers show that autocorrelation in earnings surprises is not a necessary condition for PEAD. Rather, such autocorrelations strengthens a drift that is also present in its absence. The paper then goes on to document that the drift can be profitably exploited even after accounting for transaction costs, and that greater earnings surprises are connected to greater drift, likely due to investors underreacting to earnings autocorrelation.
Link to the paper: https://ssrn.com/abstract=3713106
New working paper studying the disposition effect21.07.2020
Stefan Palan has just published a new working paper studying the disposition effect. Following a seminar presentation at the Université catholique de Louvain in October of last year, Stefan joined the research project of Rudy De Winne and Nhung Luong, who study whether investors whose behavior exhibits the disposition effect choose different order types and different limit prices than investors less prone to the disposition effect. The working paper reports strong evidence supporting this conjecture from a comprehensive analysis of a large dataset of millions of trades by thousands of Belgian retail investors. For the next version of the paper, the authors aim to run experiments to document causal relationships.
Link to the paper: https://ssrn.com/abstract=3657007
Jürgen Brandner joins reseach platform24.06.2020
Jürgen Brandner recently joined the research platform as a PhD student under the supervision of Stefan Palan and Erik Theissen. Jürgen will strengthen our team (which includes Josef Fink) studying the post-earnings-announcement drift. In particular, he plans to study the role of announcement timing on the drift and will also delve deeper into the market microstructure of the phenomenon.
Michael Kueschnig joins research platform24.06.2020
Michael Kueschnig recently joined the research platform after accepting a position as university assistant at the Institute of Banking and Finance under the supervision of Andrea Schertler. Michael studied Economics at the University of Munich and the Vienna University of Economics and Business and is a Certified Financial Risk Manager. He previously worked as a consultant in the financial services industry, where he specialized in risk management.
Michael's research interests include empirical banking, financial risk management and banking regulation. He intends to center his PhD thesis around the systemic and idiosyncratic risk implications of parent and subsidiary company relationships in the financial sector.