Research

Research Interests

financial history | financial markets | trading behavior | household finance

Publications

Does Speculation Increase Volatility in Grain Futures Markets? Evidence from the Interwar Chicago Board of Trade, with Alexander Pütz

European Review of Economic History, September 2024, Vol. 29 (1)

A key justification for futures regulation in the interwar period was the idea that speculators were making grain prices volatile, and therefore speculative activity needed to be restricted. This paper uses new data on grain futures contracts traded at the Chicago Board of Trade to empirically assess whether speculators Granger caused volatility in futures markets during the interwar period. We find that speculators did not Granger cause volatility, but volatile markets Granger caused speculative activity. These results suggest that speculators entered volatile markets but did not increase volatility.

Working Papers

Does Options Trading Matter for Risk Management? Insights from the 1936 Options Ban, with Fiona F. Höllmann

SSRNThis paper exploits the 1936 prohibition of options trading in the United States as a natural experiment to examine the role of options in shaping price dynamics and risk transfer in commodity markets. Using newly assembled weekly wheat and corn price data for Chicago (treatment) and London (control) from 1934-1939, we implement a difference-in-differences framework to estimate the causal effect of options trading on market volatility and hedging effectiveness. The options ban led to a significant but temporary increase in futures price volatility consistent with the view that options facilitate information transmission and reduce market uncertainty. Hedging effectiveness declined substantially after the ban, indicating that the absence of options impaired the futures market’s risk-transfer function. Our findings provide the first evidence on how options trading enhances price stability and risk management in commodity markets.

Mental Barriers to Investing: Psychological Fixed Costs and Stock Market Participation, with Fiona F. Höllmann

SSRNThis study examines how affective states, referring to individuals’ mood, psychological condition, and ability to process uncertainty, influence household stock market participation. Using mental health data from the German Socio-Economic Panel (SOEP) as a proxy for affective states, we show that better mental health significantly increases the likelihood of stock ownership, while symptoms of depression and chronic worry reduce participation. Our estimates suggest that a one-standard-deviation improvement in overall mental health translates to approximately 120,000 stock market entering households annually in Germany. To address endogeneity, we exploit the COVID-19 pandemic as a natural experiment using a Difference-in-Differences Instrumental Variables (DiD-IV) approach. We find that individuals with weaker pre-crisis social networks experienced larger declines in mental health during the pandemic and are significantly less likely to become stockholders than those with stronger social ties. Conceptually, we identify three channels through which mental health affects financial decision-making: external beliefs (expectations about returns), internal beliefs (perceived capability to invest), and preferences (risk tolerance).

Ongoing Projects

How Should We Measure Historical Inflation Expectations? Lessons from 150 Years of Data, with William Quinn

How should we measure inflation expectations in contexts where survey data is unavailable or unreliable? We develop two continuous measures of inflation expectations for the U.S. between 1877 and 2020. The first measure applies modern text analysis methods to over seven million articles from the New York Times, transforming unstructured data into a time series of inflation expectations. The second measure uses newly collected commodity spot and futures price data to develop a market-based measure. The effectiveness of each measure at predicting inflation is then tested in a rolling window time-dependent weighted least squares framework. Our results show that the news-based measure is an effective proxy for inflation expectations until around 2000, even when controlling for current inflation, but the commodity market measure is generally ineffective, with brief exceptions at the beginning and end of our sample period. The coefficient in the post-2000 period suggests a negative relationship between the commodity market measure and future inflation. These results demonstrate the general validity of news based measures as a proxy for long-run inflation expectations.

Social Networks and Investor Behavior in Historical Financial Markets, with William Quinn and Sibylle Lehmann-Hasemeyer

This research project contributes to the social finance literature by examining how social networks and peer interactions influenced investor behavior in British financial markets between 1862 and 1970. Extensive shareholder registers are being digitized using AI-based handwriting recognition to construct a novel dataset capturing investors’ names, gender, occupation, addresses, ownership holdings, and transfers over time. This newly collected archival data address key measurement and identification challenges, enabling the isolation of causal peer effects from homophily and shared economic shocks in a pre-digital environment. The project is expected to provide novel insights into how neighborhood characteristics, word-of-mouth communication, and socio-demographic factors shaped stock market entry, holding periods, and risk-taking behavior. By uncovering the mechanisms through which localized networks facilitated information diffusion and influenced financial decision-making, the findings aim to deepen our understanding of thow social networks influence financial behavior and open new avenues for research in behavioral and historical finance.
This project is supported by a data collection grant from Behavioral Finance e.V.

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