Stefan Zeisberger

Research

Publications

All’s Well That Ends Well? On the Importance of how Returns are Achieved Journal of Banking & Finance (forthcoming) with D. Grosshans

Do We Measure Overconfidence? A Closer Look at the interval Production Task Journal of Economic Behavior & Organization 128, pp. 121-133 (2016) with F. Langnickel

Improving Investment Decisions with simulated experience Review of Finance 19, pp. 1019-1052 (2015) with Mr. Bradbury and T. Hens

The impact of monetary policy on stock market bubbles and trading behavior: evidence from the lab Journal of Economic Dynamics and Control 37, pp. 2104-2122 (2013) with U. Fischbacher and T. Hens

Measuring the Time Stability of Prospect Theory Preferences Theory and Decision 72, pp. 359-386 (2012) with D. Vrecko and T. Langer

Download individual Cumulative Prospect Theory parameter data (Excel file)

Why does myopia decrease the willingness to invest? Is it Myopic Loss Aversion or Myopic Loss Aversion Probability? Theory and Decision 72, pp. 35-50 (2012) with T. Langer and M. Weber

Management Guidance – bevorzugen professionnelle Kapitalmarktteilnehmer wirklich Punktprognosen? Journal of Management Control 21, 349-364 (2011) with Lammert, J. and C. Watrin

Investment Horizon and the Attractiveness of Investment Strategies: A Behavioral Approach Journal of Banking & Finance 34, pp. 1032-1046 (2010) with M. Dierkes and C. Erner

A Note on Myopic Loss Aversion and the Equity Premium Puzzle Finance Research Letters 4, pp. 127-136 (2007) with M. Trede and T. Langer

Working Papers

How Trading Performance Affects the Formation and Use of Beliefs (2017) with F. Langnickel and D. Grosshans

This study provides new insights on how investors form beliefs about future asset prices and how they use these beliefs for their trading decisions. Compared to the objective Bayesian benchmark, investors become overly optimistic when they face a paper loss. In addition, selling decisions are less sensitive to beliefs than purchase decisions. This difference is driven by selling behavior in the presence of paper losses. Our insights stem from a laboratory experiment in which participants are price-takers and trade a stock governed by a persistent two-state Markov chain. At each point in time, we elicit incentivized beliefs about the probability that the stock price will increase in the next period.

Do People Care about Loss Probabilities? (2016)

In a series of experiments we demonstrate that people pay explicit attention to the probability of losing. Participants’ willingness to take risks and choice behavior is considerably influenced by loss probabilities, and performance feedback seems unable to mitigate this effect. This behavior contradicts predictions of normative and descriptive decision theories such as Expected Utility Theory and (Cumulative) Prospect Theory for typically assumed preference parameters and functional forms. Our results hold for investment, allocation and choice tasks, for repeated decisions and one-shot ones as well as for decision from experience and decisions based on description.

Does Investor Risk Perception Drive Asset Prices in Markets? Experimental Evidence (2017) with J. Huber and S. Palan

What people perceive as risk clearly goes beyond variance. Several papers have shown that, e.g., probability of loss plays a more prominent role in perceived risk than does variance. We are the first to explore how individual risk perception influences prices and trading behavior in a market setting by exposing subjects to a number of differently shaped return distributions which they then trade on. We first elicit subjects’ individual risk perceptions, finding results in line with earlier papers. We then let subjects trade assets with these return distributions on a continuous double auction market. In the markets we observe active trading and prices strongly driven by average risk perception. While standard finance theory predicts identical prices for most of our assets we find average prices to vary by up to 20 percent, with assets perceived as being less risky trading at significantly higher prices.

Do Risk Simulations persistently Lead to Better Investment Decisions? (2017) with M. Bradbury and T. Hens

Risk simulations based on experience sampling were found to significantly improve initial investment decisions. We analyze the advantages and limitations of risk simulations in a setting in which investors can adjust their investment strategy before the end of the investment horizon. Our experimental results underscore the positive effects of risk simulations on investors’ understanding of the risk-return trade-off. Furthermore, we find that investors who are informed via description require multiple investment periods until they show stable average risk-taking behavior and similar allocations to the risky asset as investors informed via risk simulations. We do not find any effects of initial simulation-based learning on investors’ trading volume or trading behavior with regard to previous investment outcomes.

Do changes in reporting frequency really influence investors’ risk taking behavior? Myopic loss aversion revisited (2015) with T. Langer and M. Weber

According to the behavioral concept of myopic loss aversion (MLA), investors are more willing to take risks if they are less frequently informed about their portfolio performance. This prediction of MLA has been confirmed in various experimental studies and the conclusion has been drawn that banks could in fact influence investors’ risk taking behavior by adjusting the frequency with which they give feedback. However, none of the existing studies has really provided an explicit test of this dynamic prediction. Instead it is simply assumed that the results from between-subject experiments translate to a within-subject scenario in which feedback frequency changes over time. To examine the scope of the phenomenon and to assess its practical relevance, we present the first experimental study of MLA that directly addresses the dynamic prediction and manipulates feedback frequency (and investment flexibility) within-subject. Our analysis reveals that the impact of such dynamic changes is not as straightforward as commonly assumed. Stickiness and a general introspection component superimpose the standard MLA effect and generate unexpected dynamic patterns of risk taking behavior.

Current Projects

What is Risk? Risk perception in return distributions (with L. Anzoni)

We investigate the determinants of risk perception and investment propensity in a financial context. In a series of experiments, participants are presented with return distributions. Our study design allows to separate various risk measures such as variance of returns, skewness, probability of losing or the maximum possible loss. Our results hint to the probability of losing being the main driver of risk perception and investment propensity. Volatility, which is typically used by researchers, financial advisors and the regulator, does not play a major role. Our insights should allow financial advisors and regulators to support an effective and understandable communication of investment risks to prevent suboptimal investment decisions.

Financial losses are as bad as Investors Anticipate? (With C. Laudenbach, M. Rumpf and M. Weber)

How investors cope with crashes (with S. Andraszewicz and C. Hölscher)