Contributions in Merlin

Bhattacharya et al. (2012) shows that many investors are reluctant to accept and follow financial advice. This study analyzes three possibilities which could cause this misbehavior: non-monetary costs, willingness to become informed and comprehensibility of financial information. As so many investors do not accept financial advice, the study further analyzes if it is beneficial to nudge investors to do what is good for them (i.e. a risk profiling task). In order to improve the comprehensibility of financial information, the study further tests if different kinds of investors prefer different kinds of risk description formats. The results show that non-monetary costs and the comprehensibility of financial information are not the reasons why so many investors are reluctant to become informed investors. Moreover, nudging investors to do what is good for them is especially beneficial for investors who are intrinsically insufficiently motivated to become informed and who are financially unexperienced. Last but not least, the data clearly shows that different kinds of investors prefer different kinds of risk description formats.

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We study the link between the profitability of momentum strategies and firm size, drawing on an extensive dataset covering 23 stock markets across the globe. We first present evidence of an "extreme" size premium in a large number of countries. These size premia, however, are most likely not realizable due to low stock market depth. We also show that international momentum profitability declines sharply with market capitalization. Momentum premiums are also considerably diminished by trading costs, when taking into account the actual portfolio turnover incurred when implementing this strategy. In contrast to strategies based on size, we find that momentum premia especially for medium-sized stocks still remain economically and statistically significant in most equity markets worldwide after adjusting for transaction costs.

Organizational configurations, sets of firms with similarities in a number of essential characteristics, provide important insights into the synergies inherent to certain combinations of structural attributes and the performance effects of firms’ retention of, adaptation to, or decoupling from high-performing configurations. The fundamental assumption is that the better a firm’s “fit” with an ideal type configuration, the higher its performance. Although configurations are multidimensional constructs, researchers often simplify the dynamics of structural changes of configurations and the movement of firms within and between them. This simplification risks mis-specifying the organizational changes necessary for firms to achieve high performance. Using a mix of set-theoretic and econometric methods, we analyze a balanced panel of 244 Swiss firms in 2005, 2008, and 2011. We identify four temporally stable high-performing configurations: the “professional service firm,” the “organic,” the “mechanistic,” and the “small bureaucracy,” and demonstrate that even within this relatively short period, firms are exceptionally versatile in their change tracks. Thus high-performing configurations appear enduring not despite but because of firms' movements through these configurations. Furthermore, we demonstrate the complexity of the fit-performance association and argue that firms with a good fit will not only benefit from implementing an efficient yet firm-unspecific organizational structure, but will—through this configuration additionally improve their ability to exploit inimitable firm-specific resources.

We develop a novel stress-test framework to monitor systemic risk in financial systems. The modular structure of the framework allows to accommodate for a variety of shock scenarios, methods to estimate interbank exposures and mechanisms of distress propagation. The main features are as follows. First, the framework allows to estimate and disentangle not only first-round effects (i.e. shock on external assets) and second-round effects (i.e. distress induced in the interbank network), but also third-round effects induced by possible fire sales. Second, it allows to monitor at the same time the impact of shocks on individual or groups of financial institutions as well as their vulnerability to shocks on counterparties or certain asset classes. Third, it includes estimates for loss distributions, thus combining network effects with familiar risk measures such as VaR and CVaR. Fourth, in order to perform robustness analyses and cope with incomplete data, the framework features a module for the generation of sets of networks of interbank exposures that are coherent with the total lending and borrowing of each bank. As an illustration, we carry out a stress--test exercise on a dataset of listed European banks over the years 2008-2013. We find that second-round and third-round effects dominate first-round effects, therefore suggesting that most current stress-test frameworks might lead to a severe underestimation of systemic risk.

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In this paper we analyze which graphical representation of risk is most effective in supporting investors to assess the risk and return characteristics of a fund. Moreover, we test on which criteria the investors base their risk taking behavior. To this end we compare return bar charts and price line charts, combined with some additional information such as a risk scale or a gain and loss range. We find that the risk communication with bar charts performs relatively well, except with regard to communicating the possibility of losses. Furthermore, we find that people generally underestimate risks and overestimate return. We additionally find that risk perception has the strongest influence on risk taking behavior, and in particular that a higher risk perception leads to less risk taking.

Purpose: The purpose of this paper is to provide empirical evidence for individual educational investment decisions and to investigate the relative importance of two factors, the type of education (vocational vs. academic) and subject area (e.g., commercial or health), in determining variance in earnings. Design/methodology/approach: Using a sample of 1200 individuals based on the 2011 Swiss Adult Education Survey, Mincer-type earnings equations are estimated. The variance in earnings is decomposed with respect to the two factors mentioned above, which allows to quantify the relative contributions of type of education and subject area to variance in earnings. Findings:The results of the variance decomposition show that subject area explains nearly twice the variance in earnings compared with that explained by type of education. Social implications: As results show that earnings variance-and thereby risk-relate more to subject area than to type of education, this study suggests that for individuals caring about the risk of their educational decision the selection of a specific subject area is more relevant than the choice between vocational and academic tracks; in addition, educational policies as part of HRM policies should devote as much attention to the choice of subject areas as to vocational or academic education. This is especially important for companies or countries planning to introduce or to extend vocational education as part of their human resources strategies. Originality/value: This study is the first to show whether earnings vary more by type of education or by subject area.

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In this paper we examine the interaction between social and financial returns in microfinance. Running multivariate regression models and using 1,508 observations on microfinance institutions between 2004 and 2010, we find strong evidence suggesting that institutions with more social engagement in terms of outreach to the poor earn higher portfolio yields. We also find that some measures of outreach are associated with increased operating expenses. As return figures are influenced by both costs and yield, and both increase with depth of outreach, these two contradictory results lead to a zero sum effect on return measures.