Contributions published at Experimental Finance (Stefan Zeisberger)

Professor Stefan Zeisberger vertelt over de psychologische valkuilen in het besluitvormingsproces, wat nog steeds een onderbelicht onderwerp is in de wereld van finance en investeren.

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In a series of experiments, we provide evidence that people pay special attention to the probability of losing. We first analyze this behavior in the typically used one-shot choice tasks. We then extend our analysis to repeated decisions in choice tasks, as well as allocation and investment tasks. Additionally, we test both decision making under risk and under gradually removed uncertainty, as with decisions from experience. Our findings of explicit attention to loss probabilities contradict the predictions of normative and descriptive decision theories, such as Expected Utility Theory and (Cumulative) Prospect Theory. We suggest a value function with a jump rather than a kink at the reference point, which separates gains and losses.

Der Beginn der Digitalisierung, die Verflechtung von Kryptowährungen und das Whitepaper von Libra/Diem haben die Zentralbanken wachgerüttelt. Sie haben begonnen, sich mit digitalem Zentral- bankgeld zu befassen. Doch wir befinden uns erst in den Startlöchern. Es sind noch viele Fragen zu den Vor- und Nachteilen von digitalem Zentral- bankgeld offen. Diese werden in der vorliegenden Arbeit erforscht. Anhand der Literatur und einer selbst durchgeführten Umfrage werden Vor- und Nachteile in den Bereichen: Finanzielle Inklusion, Geld ohne Schuldnerrisiko, Zahlungsverkehr, Finanzstabilität, Geldpolitik und Finanzkriminalität recherchiert. Dabei kann im Ergebnis gesagt werden, dass einerseits der Zentralbank neue geldpolitische Möglichkeiten offenstehen, anderseits wäre die Finanzstabilität durch digitales Zentralbankgeld gefährdet.

Recent literature has documented substantial arbitrage opportunities in markets for cryptocurrencies. Given those findings, I re-examine the exchange rates of three cryptocurrencies on 26 exchanges with data from 2017 to the end of 2021. My results first provide evidence that, based on arbitrage indices established in this paper, price differences exist. However, the magnitude decreased greatly from 2019 onward. I then test a cross-platform and zero-cost strategy, which shows that from the beginning of 2019, substantial arbitrage opportunities hardly exist. Based on this, I discuss several frictions which are associated with the exploitation of price differences.

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Greed has important implications for society and the economic environment we live in. It is further associated with phenomena emerging directly in financial markets. This bachelor thesis studies the topic of dispositional greed and its influence on diverse behavioral situations in financial markets. It is found that dispositional greed is correlated with loss aversion, fear of losses, willingness to take financial risks, and impulsive and immoral investing. However, predictive effects were only found for impulsivity and immorality. Moreover, dispositional greed is more specifically associated with reactive, impulsive investing behavior enacted by certain stimuli. For immorality, the maximization motive cannot be ruled out. Men and right-wing oriented people tend to be greedier. These new and confirmatory findings are suggestive of further research on the meaning of greed on individual investing behavior and its consequences on financial occurrences.

When making investment decisions, people rely heavily on price charts displaying the past performance of an asset. Price charts can come with any time frame, which the provider might strategically choose. We analyze the impact of the time frame on retail investors’ behavior, particularly trading activity and risk-taking, in a controlled experiment with 1041 retail investors. We find that shorter time frames are associated with more trading activity, resulting in higher transaction fees and investor welfare losses. However, the time frame does not affect average risk-taking.

During the COVID-19 pandemic, the trading platform Robinhood attracted many new inves-tors. In this paper, the trading behavior and performance of Robinhood users, representing retail investors, is investigated. It shows that Robinhood users are subject to attention induced trading, prefer familiar stocks, invest countercyclically, and are strongly biased toward short-term returns in stock selection. This behavior intensified even further during the COVID-19 pandemic. Over the observation period from May 2018 to August 2020, the Robinhood users managed to perform well, especially in markup phases.

In our study we conduct an experiment with the aim of testing if risk perception is domain dependent, namely if the declared level of risk attributed to a lottery significantly depends on the fact whether we deal with a winning lottery (probability of loss: 0%) or a losing lottery (probability of gain: 0%). To do so the participants are presented with a series of four 50:50 lotteries and the levels of perceived risk are collected. We find that risk perception exhibits domain dependence. It is furthermore influenced by the probability of loss as well as by the volatility of the lottery, which, how-ever, cannot be considered the leading factor.

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Remittances are international transfers of funds that are most commonly sent from migrant workers to their families in their home countries and represent an important source of income for more than 800 million recipients around the world. According to the World Bank’s estimates, remittance service providers charged 6.75% of the transferred amounts in Q3 of 2020 on average. The United Nations believes that a reduction of transaction cost would contribute to more equality across the globe, as remittances are primarily sent from high-income countries to low and middleincome countries. Since FinTech has been the major source of innovation within the financial industry in recent years, the thesis analyses whether it represents the necessary development to improve the situation and bring prices down.

Investoren redeten sich ihre Performance gerne schön, sagt Stefan Zeisberger, Professor für Fintec an der Universität Zürich. Ein Interview über Emotionen beim Anlegen und ihre Risiken.

Interview

Greed has been shown to be an important economic motive. Both the popular press as well as scientific papers have mentioned questionable practices by greedy bankers and investors as one of the root causes of the 2008 global financial crisis. In spite of these suggestions, there is as of yet no substantive empirical evidence for a contribution of greed to individual trading behavior. This paper presents the result of 15 experimental asset markets in which we test the influence of greed on trading behavior. We do not find empirical support for the idea that greedier investors trade fundamentally different from their less greedy counterparts in markets. These findings shed light on the role of greed in trading and the emergence of asset market bubbles in specific, and of the financial crisis in general. Directions for future research are discussed.

Risk is an integral part of many economic decisions, and is vitally important in finance. Despite extensive research on decision-making under risk, little is known about how risks are actually perceived by financial professionals, the key players in global financial markets. In a large-scale survey experiment with 2,213 finance professionals and 4,559 lay people in nine countries representing ~50% of the world's population and more than 60% of the world's gross domestic product, we expose participants to return distributions with equal expected return and we systematically vary the distributions' next three higher moments. Of these, skewness is the only moment that systematically affects financial professionals' perception of financial risk. Strikingly, variance does not influence risk perception, even though return volatility is the most common risk measure in finance in both academia and the industry. When testing other, compound risk measures, the probability to experience losses is the strongest predictor of what is perceived as being risky. Analyzing professionals' propensity to invest, skewness and loss probability have strong predictive power too. However, volatility and kurtosis also have some additional effect on participants' willingness to invest. Our results are very similar for lay people, and they are robust across and within countries with different cultural backgrounds as well as for different job fields of professionals.

We examine the influence of financial asset historical price path characteristics on investors’ risk perception, return beliefs and investment propensity. To that end, we run a series of survey experiments in which we present various price patterns to individuals with vested interest in financial matters. Our findings reveal that price paths with identical daily and monthly returns (and consequently identical return standard deviation) can lead to substantially different risk perception by investors, indicating that historical volatility is insufficient to explain risk perception. Salient features such as highs, lows and crashes are the most influential drivers of perceived risk in price paths. Return forecasts are primarily driven by past overall returns and the most recent price developments. Perceived risk and return beliefs strongly predict investment propensity.

We explore how individual risk perception influences prices and trading behavior in a market setting. Specifically, our study lets experimental participants trade assets characterized by varying shapes of return distributions. While common mean-variance models predict identical prices for most of our assets, we find trading prices to differ significantly. Assets that are perceived as being less risky on average (despite having identical volatility) trade at significantly higher prices. Individually, traders who perceive a certain asset to be less risky are also net buyers on average. With regard to different risk measures, our results show that the probability of a loss is the strongest predictor of transaction prices and risk perception. All these results hold also for experienced traders and when traders can trade two assets at the same time.

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