Contributions published at Financial Economics (Thorsten Hens)

Based on a large international survey we analyze how German- French- and Italian-speaking Swiss differ in their investment decision behavior and competence as compared to their closest neighbors abroad speaking the same language. Although language may be closer to the individual self than the country of residence, we find that there are greater similarities in the decision behavior of Swiss speaking different languages than between Swiss and their linguistically closest neighbors abroad. These similarities hold also for the investment competence. We conclude that there is Swissness in the decision behavior and in the investment competence, which most likely has cultural origins, as it cannot be explained by demographic and socio-economic similarities between the regional samples.

Moderne Entschädigungsprogramme sind meist leistungsbezogen und an die zukünftige Wertentwicklung des Unternehmens gekoppelt. Häufig werden dabei Aktienoptionen eingesetzt. Die asymmetrische Auszahlungsstruktur von Aktienoptionen „belohnt“ Kurssteigerungen überproportional, Verluste sind dagegen begrenzt. Somit kann für den Empfänger das Eingehen von Risiken vorteilhaft sein. Die Untersuchung von ca. 1‘800 in den USA gelisteten Unternehmen stützt die Annahme, dass ein positiver Zusammenhang zwischen der Höhe der Optionsentschädigung für den CEO und der Volatilität des publizierten Unternehmensergebnisses besteht. Eine Entschädigung mit Aktienoptionen kann somit Möglichkeiten bieten, die Risikobereitschaft des CEOs zu beeinflussen und diese den Interessen der Eigentümer anzugleichen.

We investigate the effect of monetary policy on stock market bubbles and trading behavior in experimental asset markets. We introduce the possibility of investing in interest bearing bonds to the widely used laboratory asset market design of Smith et al. (1988). Treatment groups face a variable interest rate policy which depends on asset prices, while control groups are subjected to a constant interest rate. We observe a strong impact of our interest rate policy on liquidity in the stock market but only a small impact on bubbles. However, we find that announcing the possibility of reserve requirements significantly reduces bubbles.

This paper evaluates individuals’ ability to avoid investment mistakes and analyzes how investment competence is related to the propensity to seek or rely on professional advice. To address these issues, we use novel survey data collected from a representative sample of Swiss households. We find that investment competence is characterized by significant age and gender gaps, and that individuals who rely less on price movements as a source of information about investments are more likely to show above-the-average investment competence. We also find that individuals with relatively extensive investment experience and those who rely relatively strongly on their own judgment in making investment decisions are more likely to make investment decisions autonomously. In addition, we find that investment competence is positively related to the demand for financial advice. Thus, it appears that the individuals who most need financial advice are those who are least likely to seek such advice and rely on it.

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In this paper, aimed at policy makers like financial regulators and central bankers, we first provide a concise overview of experimental economics in which we argue that in principle experimental economics provides an excellent foundation for the analysis of policy measures in general and of financial policies in particular. Second, we provide an overview of experimental studies on the functionality of financial markets and discuss to which extent the current literature is informative for financial regulators. Third, we address the external validity of the results generated by experimental economics. Throughout this paper, we focus on the finance aspect of using experiments for the study of financial market regulation. Based on our findings, we conclude that experiments together with empirical research and theoretical reasoning based on solid facts will play an important role in public policy advice in the future.

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