My main fields of research are: 1) asset management (asset allocation, option markets, investment strategies), 2) asset pricing (factor models, return predictability) and 3) corporate finance (the interaction of corporate investment and financing decisions with the macroeconomy). My main expertise is empirical research, however, my corporate finance related work is a synthesis of theory with calibration methods and empirical analysis.
"Predicting Corporate Bond Liquidity Via Machine Learning" (joint with Axel Cabrol, Wolfgang Drobetz and Tizian Otto)
(2024, Financial Analysts Journal, 2024, 80(3): 103-127, available on SSRN)
This paper tests the predictive performance of machine learning methods in estimating the illiquid-ity of U.S. corporate bonds. Machine learning techniques outperform the historical illiquidity-based approach, the most commonly applied benchmark in practice, from both a statistical and an economic perspective. Tree-based models and neural networks outperform linear regressions, which incorporate the same set of covariates. Gradient boosted regression trees perform particularly well. Historical illiquidity is the most important single predictor variable, but several fundametal and return- as well as risk-based covariates also possess predictive power. Capturing interactions and nonlinear effects among these predictors further enhances predictive performance.
"Cyclicality of Growth Opportunities and the Value of Holding Cash" (joint with Wolfgang Drobetz and Meike Ahrends)
(2018, Journal of Financial Stability, 37(August), pp.74-96, Available on SSRN)
We show that business cycle dynamics and, in particular, the cyclicality of a firm’s growth opportunities, determine the value of corporate cash holdings. An additional dollar of cash is more valuable for firms with less procyclical expansion opportunities. This valuation effect is strongest for low leverage and high R&D firms, but is independent of their financial status. Corporate cash holdings provide the flexibility to invest for firms that have expansion opportu-nities during crisis times with business cycle downturns and supply-side financial constraints. Cash holdings in firms with less procyclical growth opportunities are associated with higher investment and better operating performance.
"Financing Asset Sales and Business Cycles" (joint with Marc Arnold and Dirk Hackbarth)
(2018, Review of Finance 22, pp.243-277, available on SSRN)
Using a model of financing, investment, and macroeconomic risk, we investigate when firms sell assets to fund investments (financing asset sales) across the business cycle. Equity financed investment transfers wealth from equity to debt because asset volatility declines and earnings increase when firms invest. Financing asset sales reduce asset collateral and, hence, transfer wealth back from debt to equity. Exploring the dynamics of this motive to mitigate the wealth transfer problem with asset sales across business cycles helps explain novel stylized facts about asset sales and their business cycle patterns that cannot be rationalized by traditional motives for selling assets.
"Funding Decision and Entrepreneurial Team Diversity: A Field Study" (joint with Rick Vogel, Edlira Shehu, Doron Kliger and Henning Beese)
(2014, Journal of Economic Behaviour and Organization, Vol. 107 Part B, 595-613.)
This study provides experimental evidence using a large sample of 2894 individuals about the impact of demographic attributes within entrepreneurial teams on funding decisions by external capital providers. In previous work the role of diversity with regard to personal characteristics within entrepreneurial teams, such as education, gender and nationality is not clear. Specifically, we focus on task-oriented (e.g., education, experience) and relations-oriented (e.g., age, nationality) dimensions of diversity. The participants of our experiment have to decide on providing early-stage funding to a team of start-up managers whereat the diversity of these teams varied across treatment groups. We find that task-oriented diversity is positively and significantly related to the willingness of respondents to provide capital. Interestingly, the same applies to relations-oriented diversity. This suggests social capital of an entrepreneurial team matters to a greater extent to funding decisions of external investors than the behavioral integration of the team's human capital. Entrepreneurial teams must therefore carefully balance the social costs of non-task related diversity and the access to financial resources.
"Value Creation and Firm Life Cycle" (joint with Jiri Tresk, Wolfgang Drobetz, Zhe Li)
Shareholder wealth creation in public equities is strikingly uneven, yet most evidence treats this as a cross-sectional rather than a dynamic phenomenon. This paper asks not which firms create wealth, but when along the corporate life cycle net shareholder wealth is generated. Using a cash-flow-based lifecycle classification and a shareholder-aggregate measure of lifetime excess wealth for U.S. listed firms from 1990 to 2024, we find that Mature firms create $41.6 trillion, or 71.4% of the $58.3 trillion in total excess shareholder wealth, while Growth and Shakeout contribute $9.8 trillion (16.8%) and $7.9 trillion (13.6%), respectively; in contrast, Introduction firms destroy $1.4 trillion (-2.4%) and Decline adds only $0.3 trillion (0.6%). The Mature stage is the only point in the life cycle where the median firm creates positive excess wealth ($10 million), while the median firm in every other stage destroys value. Because life-cycle position is closely tied to financial flexibility, we examine how financing frictions interact with these dynamics and find an extreme concentration of wealth creation: unconstrained Mature firms generate $33.6 trillion, or 57.2% of all excess shareholder wealth, despite representing less than 3% of firm-stage observations; within this group the median unconstrained Mature firm creates $801 million, whereas the most constrained Mature firms create zero. Adding unconstrained Growth and Shakeout firms raises the total contribution of financially flexible mid-life firms to roughly 83% of all excess wealth. Reframing the problem from cross-sectional sorting to intertemporal positioning therefore identifies unconstrained mid-life firms as the primary engine of the equity premium and provides clear guidance for long-horizon asset owners to tilt exposure toward these firms while managing risk at the life-cycle tails.
"Bootstrapping and Bias: The Economic Costs of Misjudging Downside Risk" (joint with Hubert Dichtl, Wolfgang Drobetz, Tizian Otto) - R&R in Journal of Portfolio Management
The maximum drawdown (MDD), the maximum peak-to-trough loss associated with a series of returns, is a simple but highly important measure for investors with a downside risk budget. This paper compares the performance of three bootstrap simulation methods to estimate the entire distribution of MDDs from various global stock-bond allocations, quantifying the economic costs of biased estimates for three realistic decision-making scenarios. Compared to its benchmarks, the stationary bootstrap of Politis and Romano (1994) leads to the most precise estimates for the MDD which, in turn, helps avoid costly investment errors in portfolio construction and dynamic risk control strategies.
"The Information Content of Option Demand" (joint with Kerstin Kehrle)
(Swiss Finance Institute Research Paper No. 12-43, also available on SSRN)
This paper combines the concept of market sidedness with excess option demand (changes in open interest) to solve the empirical challenge of separating directional from uninformed trading motives in widely available, unsigned options data. Our measure of options market sidedness persistently predicts the sign and strength of stock returns. Trading strategies conditional on the measure are highly profitable. For instance, when the measure indicates positive (negative) information, out-of-the-money calls (puts) generate returns of 27% (32%) over roughly four weeks. Risk-adjusted returns of a long-short equity strategy yield more than 2%. An increase in directionally informed demand predicts a decrease in option liquidity and increases in pricing inefficiency.
"Volatility Information in Index Option Demand"
This paper provides evidence that demand for equity index options has predictive power for future volatility beyond current, lagged volatility and the VIX in widely available, low-frequency data. The predictive power increases prior to macroeconomic announcements and exhibits a positive relation with investor uncertainty about macroeconomic news. Straddle positions that trade on the volatility informed index option demand yield annualized Sharpe Ratios that are up to twice as large as the Sharpe Ratios on a long index investment. Sharpe Ratios increase with the amount of volatility informed trading in the options market. In times of high volatility, the demand for straddle positions contains significantly more information and has an impact on option liquidity levels.
"Managing Change and Innovation"
Digitalization, global competition and an increased velocity of life and business do not allow companies today to sit back for a while and harvest the fruit of their leading market position. Continuous or sometimes even revolutionary change and innovation are needed to stay in the game. This paper addresses the topic of managing innovation using evidence from the academic literature and occasional evidence from field research with a sample of companies from different sectors, with different sizes and locations. In particular, the study focuses on the backbone of all change and innovation processes: the organizational structure and working culture. What changes are necessary in an organization to enhance the innovation potential and allow a company to navigate through the quickly evolving market environment? What are key aspects regarding the working culture that seem to be a crucial for successful transformation and innovation processes? The key insights are: 1) Organizational structures evolve from silos to client/business line centric units, combined with communities; 2) organizational culture is one of the largest endogenous drivers of innovation management; 3) internal incubators and external innovation hubs jointly contribute to the innovation process; 4) employees become intrapreneurs; 5) a key aspect of the cultural and organizational transformation is leadership involvement and role modeling, and 6) approaches such as design thinking, lean startup, and the striving for a maximization of organizational agility disrupt the traditional work environment.