Algorithm Aversion, Appreciation, and Investor Return Beliefs (with Francesco Stradi)
Do investors trust AI analyst forecasts? Three incentivized experiments with 3,000 U.S. participants highlight that the average investor is less responsive to forecasts when AI is incorporated – suffering from algorithm aversion. The decrease in trust stems from a low perceived credibility. Interestingly, there are specific groups that exhibit algorithm appreciation, like sophisticated investors, those with higher AI literacy, and those identifying as politically progressive. Given AI's increasing role in financial markets, our results highlight the practical implications for improving trust in AI-generated forecasts.
Selected conferences: Sydney Banking and Financial Stability, 29th Annual New Zealand Colloquium, and Marketing-Finance Symposium (Maastricht University)
News coverage: 95bFM, The Conversation, Financial Times, InvestmentWeek, Radio New Zealand, Trends, ING, and Yahoo News
Video coverage: Ausbiz and TVNZ (Breakfast)
Climate Extrapolation and Relative Asset Pricing: Evidence from Bordeaux Premier Cru Wine Auctions
This paper offers evidence for climate extrapolation, a behavioral tendency where economic agents project salient local climate risks onto an asset’s valuation. Using a new dataset of over 68,000 Bordeaux Premier Cru auction prices from 222 houses across 17 countries, we highlight that greater relative climate attention in a foreign country leads to 3.58% lower relative prices for the identical bottle sold in the same month. This is consistent with the availability heuristic and is concentrated among wines of lower perceived quality (a concern for investors) and closer to the end of their drinking period (a concern for consumers). The findings cannot be explained by natural disasters, economic uncertainty, sentiment, selection bias, and granular lot-level differences in bottle conditions.
Selected conferences: AWBR (Adelaide), Burgundy School of Business, Deakin University, ESE Business School, and RMIT
News coverage: RNZ
Revisions requested for the Journal of Corporate Finance (2nd round)
Financial Regulation and Household Portfolio Reallocation: The Impact of the 1905 Dutch Lottery Ban (with Amaury de Vicq)
Do individuals adjust their investment portfolios when governments restrict gambling? We use hand-collected records of the Dutch inheritance tax to study portfolio reallocations following the 1905 Dutch Lottery Ban which exempted lottery bonds. We demonstrate that less (more) wealthy individuals significantly increased (decreased) allocations to lottery bonds after the ban. This substitution effect is weaker among the poorest, those with more readily available, legal gambling substitutes, and younger individuals. We formalize these empirical mechanisms in a life-cycle model with aspirational utility.
Selected conferences: Boulder Summer Conference on Financial Decision-Making, EHA Annual Meeting (Philadelphia), and WEIA (San Francisco)