Don't Mention the War: The Effect of War Threat on Entrepreneurial Activity in the Second Industrial Revolution (with Marc Deloof and Leentje Moortgat)
We examine the impact of war threats on entrepreneurship in Belgium during the Second Industrial Revolution (1885-1913), focusing on how geopolitical uncertainty influenced the firm creation and capital raised. Our analysis reveals significant declines in both as threats escalated. Utilizing Verdickt’s (2020) war threat measure, and controlling for political and economic uncertainty, we document that rising risk aversion suppressed entrepreneurial activity. These results challenge the effectuation theory, demonstrating that the perceived opportunities during conflicts were overshadowed by caution.
Revisions requested for Business History (4th round)
Selected conferences: Baden-Württenmberg Workshop in Economic History, BERD (Louvain-La-Neuve), EHES (Paris), and EBHA Annual conference (Rotterdam)
Algorithm Aversion, Appreciation, and Investor Return Beliefs (with Francesco Stradi)
Do investors trust AI analyst forecasts? Four incentivized experiments with 3,400 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, 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: Burgundy School of Business, Deakin University, and RMIT
Financial Regulation and Household Portfolio Reallocation: The Impact of the 1905 Dutch Lottery Ban (with Amaury de Vicq)
How do individuals adjust their investment portfolios when gambling is restricted? Using a hand-collected Dutch inheritance tax records dataset, we examine portfolio reallocations following the 1905 law, which exempted lottery bonds. After the ban, we show that lower-wealth individuals significantly increased allocations to lottery bonds, which is consistent with the main predictions of aspirational utility theory. The substitution effect was weaker among the poorest individuals, implying a strong non-linear wealth-return tradeoff. Older individuals reallocated relatively more, likely reflecting entrenched gambling preferences. Together, these findings highlight the dynamic behavioral response to a policy change.
Selected conferences: Boulder Summer Conference on Financial Decision-Making, EHA Annual Meeting (Philadelphia), and WEIA (San Francisco)
Reconsidering Risk Premia: Illiquidity and Selection Bias for Stocks and Corporate Bonds in the pre-World War I period (with Eline Poelmans and Justin Case)
We re-estimate the equity and corporate bond risk premium from 1850 to 1913 on the Brussels Stock Exchange, using a latent return model to address selection bias due to illiquidity. Corrected returns reveal that observed risk premium estimates were overstated, distorting portfolio choices and cross-sectional relationships. We find that investors underperformed portfolios based on corrected returns and that risk-return relationships break down once selection bias is addressed. The results provide an alternative view of the conventional wisdom on asset prices and could explain why returns on risky assets are considered higher in the pre-World War 1 period.
Selection Neglect and the Cross-Section of Wine Returns (with Robbe van Tillo)
We examine the concept of selection neglect – a behavioral tendency characterized by decision-making on biased observations. Using a dataset of more than 3 million wine auction transactions, we highlight that investors experience expected utility losses by suffering from selection neglect. Wines more exposed to this bias exhibit higher future returns than those in lower quintiles. The effect is stronger for wines lacking salient features, are more illiquid, have more time to expiration, and more idiosyncratic risks. Exploring the international heterogeneity in the data, we argue that negligent investors ignore data rather than lack understanding.
Revisions requested for the Journal of Banking and Finance (2nd round)
Selected conferences: AWEA Annual Meeting (San Luis Obispo), University of Antwerp, University of Adelaide, Finance Forum, and University of Queensland
News coverage: Financial Times, HLN, and WineFi Podcast
Featured in The Passion Portfolio
Non-Linear Dependence and Stock Return Expectations (with Koen Inghelbrecht, Daniël Linders, and Yong Xie)
We test the asset-pricing impact of non-linear dependence. In an experimental setting, we show that investors consider non-linear dependence in their portfolio selection decisions. Extending these laboratory results, we corroborate this relationship in the cross-section of U.S. stock returns. Importantly, this result remains even after controlling for the exposure to implied correlation. Overall, these findings are consistent with an increased demand for assets that provided hedging benefits during market downturns, suggesting that investors place a premium on non-linear dependence.
Selected conferences: Research in Behavioral Finance Conference (Amsterdam), Deakin University, Monash University, and FMA Asia/Pacific (Melbourne)
Volatility Laundering: On the Feasibility of Wine Investment Funds
Volatility laundering is the attempt to make the risks of investments appear lower than they are, potentially misleading investors and counterparties. I highlight that this is a very harmful phenomenon, particularly in undermining the feasibility of wine investment funds. If fund managers provide selection-corrected returns (free of volatility laundering) compared to biased returns, I argue there would likely be limited interest in wine investment fund structures. If managers apply the wrong returns to select wines, their potential losses can be larger than their gains.