Main Content

Studies

Get to know our research programmes and find out about the results of the individual studies:

Mutual Funds and fund managers

Is mutual fund product information comprehensible for the average investor?

With the introduction of short-form key investor information documents (KIIDs) for mutual funds in 2012, the European financial regulation underlines the importance of using simple and easy to understand language in financial product information disclosure. The objective is to provide private investors with easier and more transparent access to product information. We evaluate whether these documents and the accompanying "plain language guidelines" affect the readability of product information for mutual funds. Applying textual analytics on a large-scale sample of all mutual funds registered for sale in Germany, we are the first to quantitatively benchmark the readability of product information for retail investors on a large scale. While fund information qualifies as very difficult to read requiring up to 15 years of education, we ﬁnd that readability improved following recent disclosure regulations. Improvements are driven by simpler syntax and writing style. Still, we identify an increase in use of jargon and non-compliance with mandatory design requirements. We discuss our results and propose potential disclosure improvements.

This project is funded by the Fritz Thyssen Stiftung.

The study Double Dutch Finally Fixed? A Large-Scale Investigation into the Readability of Mandatory Financial Product Information (Scheld, Stolper & Walter, 2021) documents the project and is published in the Journal of Consumer Policy 44 (2).
How do local disclosure interventions on funds’ "activeness" affect investors and fund providers?

As of April 2018, several of the largest U.S. mutual fund ﬁrms have been constrained to disclose a measure of fund manager activeness to retail investors. We evaluate the eﬀectiveness of this intervention. We ﬁnd that, even for those funds with a large overlap of holdings with the benchmark, no measurable eﬀort to increase management activeness can be observed subsequent to the imposed disclosure. By contrast, investors strongly respond to the intervention. However, an analysis of investor reaction suggests that they do not rationally trade on the newly available information. We discuss our results and propose potential disclosure improvements.

This project is funded by the Fritz Thyssen Stiftung.

The discussion paper Leveling the Playing ﬁeld? the Eﬀect of Disclosing Fund Manager Activeness to Individual Investors (Scheld, Stolper & Walter, 2022) documents the project.
How does strategic "signaling" of mutual fund managers affect private investors’ asset allocation?

"Skin-in-the-Game" (SitG), indicating a fund manager’s private investment in her own funds, allows to align interests of fund managers and investors. Since 2005, US fund managers have been obliged to disclose their shares in self-managed funds. However, the information can be considered inaccessible to private investors, as it is neither standardized nor transparently disclosed to them. We use a different, yet more salient channel through which SitG is often signaled: the funds’ letter to the shareholders (LS). Although LS usually do not allow to infer the exact investment of the manager to, they do provide a verbal indication of whether personal shares are held by the fund management. Using textual analysis on a large sample (~16,000 observations) of mutual funds’, we are the first to show that investors trade on the verbal commitment of fund managers in the LS. We find significant inflows of funds by private investors in direct connection with the publication of LS that communicate SitG verbally. In contrast, investors do not react on the actual amount invested by portfolio as required to be disclosed by the SEC. Our findings highlight the increasing need for regulators to focus on not only content, but also the format of disclosure requirements.

This project is funded by the Fritz Thyssen Stiftung.
Investment funds: actively managed and yet only passively invested?

In the project "Affiliated mutual funds: beyond the reach of the invisible hand?" Prof. Dr. Oscar Stolper, Prof. Dr. Andreas Walter and Kim Heyden are investigating how the distribution channels of investment funds affect the activity of fund managers. In many countries banks are the main distribution channel for funds and they primarily sell the funds of their own investment company ("affiliated funds"). "Affiliated funds" are exposed to less competitive pressure due to this exclusive distribution channel, as a result of which the activity of fund management in these funds is significantly lower. They also charge the same fees for funds with high and low management costs. In contrast, funds without an exclusive distribution channel charge lower fees for funds with less activity.
How does narcissism affect fund management?

Analyzing verbatim transcribed interviews with mutual fund managers, we show that their level of narcissism is highly relevant for the delegated investment task they are entrusted with. We find that narcissistic fund managers are 41% more likely to deviate from the advertised investment style. Moreover, while funds run by narcissistic managers on average feature significantly higher investment risk, this does not reflect in higher returns. Regardless of the fund’s performance, however, we fail to observe any measurable investor reaction to fund manager narcissism, i.e. suggesting that investors are unaware of investment-relevant consequences of this personality trait.

The discussion paper Fund manager narcissism (Scheld, Stolper & Bauer, 2022) documents the project and has been presented at SGF 2022 and featured in MarketWatch, Morningstar, Capital+ and CapInside.
Which traits shape fund managers?

In the project "The Big5 in fund management" Anna-Lena Bauer investigates, in collaboration with Prof. Dr. Stolper and Dominik Scheld, the influence of the "Big 5" personality dimension on fund managers. In addition to a comprehensive typification of fund management, the project aims to quantify the influence of personality dimensions in the context of professional investments. The expected results of the project will allow insights on the "interiority" of fund managers and the potential connection between professional money management and psychological characteristics.

Financial knowledge, financial consulting and household financial decisions

What is the state of financial knowledge of private households?

In this research project, the Panel on Household Finances (PHF), a representative set of survey data collected by the Deutsche Bundesbank, will first be used to determine the state of knowledge of German households on financial issues and to compare it with the findings of the extensive literature on household finance that has developed over the last 15 years into the financial knowledge of private households all over the world. In a second paper, the authors evaluate the effectiveness of measures to improve the financial literacy of private households and highlight the role of well-founded financial literacy in the informed use of financial advisory services.

The study Financial Literacy, Financial Advice, and Financial Behavior(Stolper & Walter, 2017) documents the project and is published in the Journal of Business Economics 87(5), 581-643.
What role does financial knowledge play in the use and implementation of financial consulting?

This research project investigates the influence of financial literacy on the acceptance of financial advisory services. The results of this work suggest that even in a context in which clients do not have to fear being cheated by the advisor, the implementation rate of those clients who have a comparatively high financial education is significantly lower. Thus, the study questions the literature opinion that clients with higher financial literacy primarily show a lower acceptance of financial advisory services because they anticipate false incentives of the advisors and thus potentially distorted recommendations.

The study It Takes Two to Tango: Households' Response to Financial Advice and the Role of Financial Literacy (Stolper, 2018) documents the project and is published in the Journal of Banking and Finance (92), 295-310.
Is financial consulting more likely to be followed if the client and the consultant are similar?

This research project is the first to examine the role of social homophilia ("equal and equal likes to join") in the context of financial consulting. The results of this study indicate that there is a robust influence of social homophilia on the acceptance of financial advice: clients who agree with their advisor in all demographic characteristics (gender, age group, marital status) considered in the study follow their recommendations for action on average with a probability about nine percentage points higher than clients without any agreement with their advisor. In the case of male clients, this behaviour is largely determined by similarities in the salient characteristics of gender and age group, whereas this does not apply to female clients. The study thus identifies an influencing factor in the acceptance of financial advice that has not yet been taken into account in the literature.

The study Birds of a Feather: The Impact of Homophily on the Propensity to Follow Financial Advice (Stolper & Walter, 2019) documents the project and is published in Review of Financial Studies 32(2), 524-563. (RFS Best Behavioral Paper Award)

A follow-up project is currently investigating whether and to what extent the question of whether investment advisors themselves are invested in risky securities affects the acceptance of their investment recommendations by clients. First results indicate that investment recommendations are followed significantly more frequently by advisors with their own securities portfolio. This suggests that the presence of a portfolio of advisors is another factor that has a significant impact on the degree to which financial advice is implemented.

The study Do Actions Speak Louder than Words? Advisors' Personal Portfolios and Client Response to Investment Advice (Stolper, 2017) documents the work done so far on this project.
Trust in the bank = trust in the advisor?

In this project, the role of two central dimensions for the development of customer trust - trust in the broader business activities of the advisory financial services provider on the one hand and personal trust in the advisor on the other - for trust in his recommendations for action was first examined. The authors show that customers of savings banks and cooperative banks who, unlike private commercial banks, do not pursue a business model designed primarily for profitability, have significantly more confidence in their financial advisors. This result points to the importance of a broader concept of customer trust, which has been largely neglected in the literature so far, and which measurably influences the acceptance of financial advisory services.

The study Broad-Scope Trust and Financial Advice (Pauls, Stolper & Walter, 2016) documents the project.
Physical proximity between investor and stock corporation as determinant of stock allocation?

Two studies carried out as part of this research programme address the problem of under-diversification of retail investment in securities and examine the role of proximity between investors and corporations as a measure of stock allocation at the national and international levels. The results of these studies suggest that retail investors significantly overweight stocks issued by companies whose headquarters are closer to the investors' place of residence in their portfolios. A 'local bias' can thus be demonstrated for the portfolios of these investors, which has been shown in a follow-up study to be sustainable across national borders.

The research is described in the publications Is Local Bias a Cross-Border Phenomenon? Evidence from Individual Investors' International Asset Allocation (Baltzer, Stolper & Walter, 2013), Journal of Banking and Finance 37(8), 2823-2835, and Home-Field Advantage or a Matter of Ambiguity Aversion? Local Bias among German Individual Investors (Baltzer, Stolper & Walter, 2015), European Journal of Finance 21(9), 734-754.
Do particularly well-known companies benefit from lower financing conditions?

Another project investigated the extent to which decision heuristics of private retail investors based on an illusion of special familiarity ('family bias') with the issuing company influence the risk-adjusted financing conditions of this company. The results of this project suggest that companies do indeed benefit from a trust based on a Familiarity Bias that significantly reduces the cost of bond financing.

The study Investor Familarity and Corporate Debt Financing Conditions (Herrmann & Stolper, 2017) documents the project and is published in Finance Research Letters (23), 263-268.
What influence do negative experiences such as (consumer) fraud have on the financial well-being of private households?

This question is investigated in the study Consumer Fraud Victimization and Financial Well-Being in cooperation with Dr. Tobias Meyll (University of Gießen), Prof. Dr. Andreas Walter (University of Gießen) and Prof. Dr. Oscar Stolper. In the context of the financial situation of private households, the study deals with the far-reaching negative consequences of fraud on consumers. How does financial well-being change after an individual has become a victim of fraud? To what extent do the consequences go beyond the purely monetary loss and through what channels does such a negative event have an impact? Our empirical research operates at the interface between household finance, psychology and criminology. Our results suggest that fraud has a significant negative impact on the "financial self-confidence" of victims and therefore has serious, undesirable consequences for (future) financial decisions of individuals.

The study Consumer Fraud Victimization and Financial Well-Being (Brenner, Meyll, Stolper & Walter, 2020) documents the project and is published in Journal of Economic Psychology (76).
Transfer of knowledge

We are also actively involved in the transfer into practice of the findings gained within the framework of the research programme. For example, Prof. Dr. Stolper is a member of the scientific advisory board of the working committee "Financial Analysis for the Private Household" of the German Institute for Standardization (DIN), which is made up of university representatives, financial advisors, experts from the DIN Consumer Council and employees of Stiftung Warentest. As early as 2014, this working group successfully launched DIN Specification 77222 "Standardized Financial Analysis for Private Households" for basic protection, protection and asset planning, which aims to improve the quality of advice provided by German financial service providers and has since been implemented by numerous well-known industry representatives. The committee is currently developing this specification into a fully-fledged DIN standard, the final registration of which is scheduled for the end of 2017.
Good brand image = good share?

The subject of a research project by Anna-Lena Bauer and Prof. Dr. Stolper at the interface of brand management and investor behaviour is the question whether private households are influenced not only by their role as consumers but also by the brand image of a company in their investment decisions and thus a brand bias can be observed. In particular, it will be investigated whether and to what extent shares of companies whose products and services have a particularly good brand image among German consumers are significantly overweighted in the securities portfolios of private households in Germany.
"Equals among equals" in peer-to-peer lending: What effect do similarities between lenders and borrowers have on online investments?

We investigate if homophily—peoples’ affinity for similar others—is an issue in online investment, too. Drawing on nearly 22,000 loan applications and 54,000 investments obtained from one of the leading online peer-to-peer lending platforms in Europe, we document strong evidence in support of investor homophily even absent in-person interaction. Being in the same age group as a given investor increases a loan applicant’s odds of being funded by as much as 13%, while same-sex dyads are associated with 7% higher odds of investment. Moreover, an additional demographic similarity increases the average investment amount by more than 8%. Investors’ affinity for similar borrowers does not seem to reflect a preference for funding particular loan purposes. Finally, we document a significantly negative difference of -0.28 percentage points in risk-adjusted interest rates of loans associated with investor-borrower dyads exhibiting the highest versus lowest number of homophilous ties. While this could be rationalized by demographic commonalities reducing the cost of searching and processing investment-relevant information, results from additional analyses suggest otherwise. In sum, our evidence is hard to square with the notion that investors’ affinity for similar borrowers in online peer-to-peer lending exploits economic benefits to sameness.

The discussion paper Among Peers: The Impact of Homophily in Online Investment (Czaja, Ritter & Stolper, 2022) documents the project.
Do financial advisors influence the risk profile of private clients?

In this project Dr. Lukas Brenner in collaboration with Prof. Dr. Oscar Stolper investigates the influence of financial advisors on the investment behavior of private households. The central pillar of investment recommendations in standardized financial consulting is the process for the objective derivation of an investor's risk-bearing capacity profile by the financial consultant. This profile should be independent of the advisor and should be derived individually according to the life situation / asset situation as well as preferences and inclinations of the investor. However, findings of the study indicate that financial advisors (strongly) influence the risk profile of investors in the process. As a consequence, this leads to distorted product and investment recommendations by the advisor with far-reaching negative consequences for the investor.
What influence do financial contributions from family and friends have on the investment behaviour of private households?

Two studies conducted as part of the research programme deal with the topic of how financial contributions from family and friends influence the investment behaviour of private households. The first study examines how households that inherit or receive gifts deal with the transferred assets. How does such an inflow influence the financial decisions of households - especially with regard to saving for private retirement provision? Our findings suggest that heirs use some of the money they receive to increase their private pension provision, but there are significant differences between heir households. "Many households will come across the issue of inheritance over time. In Germany in particular, it will be interesting to see whether and how this inflow of funds influences citizens in their financial investment decisions - for example on the capital market or for old-age provision. It will be important for legislators, as well as for financial institutions, to correctly anticipate the financial decisions of thousands of affected households and to set the appropriate course". The second study addresses the issue of how (promised) financial support from the closest social circles influences the investment behaviour of private households. For example, do households that can rely on a social safety net from friends and family take a higher risk on the capital market? Building on current findings in the emerging field of social finance, the study suggests a link between such promised financial support and investment in high-risk asset classes.
What Drives Mobile Banking Adoption? – An Empirical Investigation Using Transaction Data

This paper examines drivers of mobile banking adoption by analyzing large-scale transaction data of retail banking clients. We find that the overall demand for financial services is associated with faster mobile banking adoption. Moreover, customers who already use online banking services and show digital skills in their payment behavior, tend to adopt mobile banking faster. Also, adoption rates are higher among the young. Finally, the well-documented gender gap in mobile banking adoption appears to have vanished in recent years: towards the end of our period under review, men and women adopt mobile banking equally. Our results contribute to the literature by addressing novel research questions regarding the fastest growing banking channel. Moreover, our findings carry important managerial implications as they help bank managers in the customer segmentation process and the promotion of mobile banking services.

The study What Drives Mobile Banking Adoption? – An Empirical Investigation Using Transaction Data (Becker, Stolper & Walter, 2022) documents the project and is published in Journal of Banking Law and Banking 34(1), 1-11.
What about the use of digital engagement practices in asset management?

This article is about the change in the investment of private households. In particular, advancing digitalisation and the increasing number of self-decision-makers have created new providers and business models in recent years that challenge established concepts in asset investment. A central role is played by neobrokers, who promise their customers simple, intuitive and low-cost participation in the capital market. In this context, this article examines the use of practices to incentivise the customer's interaction with the broker, so-called digital engagement practices (DEPs). To this end, a critical classification of DEPs is first made against the background of potentially different interests of investors and neobrokers. In addition, the consequences of the use of DEPs are discussed on the basis of current findings from behavioural finance research. Finally, a legal classification is given on the basis of the current legal situation and a look at future challenges in legislation.