Journal of Investing, forthcoming

We propose a simple and effective rotation strategy. The strategy rotates between the value-weighted market portfolio (VW) and the equal-weighted counterpart (EW) based on an implicit market signal – the lagged one-month market return. We report a statistically significant relation between the lagged one-month market return and the future 1/N premium, which is the return difference between a VW and EW portfolio. Building on the predictive quality and exploiting the time-varying nature of the 1/N premium, we introduce a transparent and robust investment strategy that yields superior absolute and risk-adjusted returns.

2021 | Review of Financial Economics, 39(4), 455-481.

In this paper, we investigate the predictive power of signals imputed from the cross-section of stock returns—namely cross-sectional volatility, skewness, and kurtosis—to forecast the time series. Adding to the existing literature, which documents cross-sectional volatility to forecast a decline in the equity premium with high in- and out-of-sample predictive power, we highlight the additional role of cross-sectional skewness and cross-sectional kurtosis. Applying a principal component approach, we show that cross-sectional higher moments add statistically and economically significant to the predictive quality of cross-sectional volatility by stabilizing its predictive performance and yielding a positive trend in in-sample and out-of-sample predictive quality for the equity premium. Additionally, we show that cross-sectional skewness and cross-sectional kurtosis span the predictive power of cross-sectional volatility for disaggregated returns with respect to size and value.

2021 | Nachhaltigkeitsregulierung, 1(3), 357-362.

Der Sekundärmarkt spielt aufgrund der hohen Volumina eine zentrale Rolle in der Zuteilung und Umverteilung von Kapital an realwirtschaftliche Unternehmen. Dementsprechend stellen Maßnahmen am Sekundärmarkt zur Beschleunigung des Übergangs zu einer kohlenstoffarmen Wirtschaft eine wesentliche Säule dar. Nachfolgend werden Maßnahmen, die Finanzmarktteilnehmern am Sekundärmarkt zur Verfügung stehen, hinsichtlich Ihrer Effektivität in der Entfaltung von klimarelevanter Wirkung diskutiert.

2020 | Journal of Asset Management, 21, 32-51.

This study provides finer-grained results on the financial effectiveness of ESG integration for mainstream active investment styles. We account for firm size, industry and country effects within ESG scores and introduce the concept of ESG risk materiality. Empirical evidence shows that US and European investors can raise their portfolio’s ESG level and increase risk-adjusted performance at the same time. Therefore, we add to the growing demand for sustainable products in the traditional investment industry and overcome the notion of ESG integration being a burden to traditional investment strategies.

2020 | Journal of Impact and ESG Investing, 1(2), 68-86.

This study provides empirical evidence on the impact of board effectiveness on firm risk. The author considers the Board Shareholder Confidence Index (BSCI) to proxy for board effectiveness of firms included in the S&P TSX Composite. Risk measures considered in this study include total risk, idiosyncratic risk, systematic risk, and volatility-of-volatility. He reports statistically significant negative relationships between board effectiveness and alternative firm risk measures, except for systematic risk. This relationship is particularly strong during periods of market distress. Considering analyst coverage and strategic ownership as competing monitoring channels for board effectiveness, the author observes a substitution effect during normal market periods and a supplementary effect during periods of market distress when an investor’s level of uncertainty is high and “every little bit helps.” The findings also note the importance of corporate governance aspects in an ESG risk management framework.

2020 | Finance Research Letters, 33.

We contribute to the ongoing debate on the existence of herding behavior in the crypto market and provide statistically significant evidence thereof. This finding is in contrast to existing empirical evidence in this field, which is primarily due to previous studies suffering from a sample bias. By introducing the concept of beta herding to the debate, we provide further robustness for our results. Moreover, we propose the concept of Bitcoin as a ‘transfer currency’ and empirically show that herding measures centered around such a transfer currency provide a more precise representation of dispersion in investors beliefs on the crypto market.

2019 | Journal of Risk Finance, 20(5), 542-555.

Existing empirical evidence on the impact of environmental, social and governance (ESG) integration on momentum portfolios is limited. The combination of the two is relevant given the risk-mitigating effect of ESG criteria, as well as the existence of momentum crashes. As such, ESG might lend itself to reduce crash risk for momentum investors. The authors document the existence of a momentum premium across European stocks and for a subset of high and lows ESG-rated stocks. However, absolute returns of momentum strategies are significantly lower if momentum strategies are pursued on a subset of high ESG stocks. Additionally, findings document a risk-mitigation effect of ESG for momentum portfolios with significantly lower returns for momentum portfolios based on low ESG stocks during periods of momentum crashes.

2019 | Applied Economics, 51(41), 4539-4550.

Conventional wisdom in Germany claims pork hocks with sauerkraut and beer. But is it really that simple? In an unbalanced cross-country panel covering 169 nations and time-series records of up to 52 years, we analyse drivers behind beer consumption. Based on data gathered from Worldbank and Faostat, we run multivariate panel regressions and test for the explanatory power of three categories of food and six macroeconomic and demographic variables. Indeed, we confirm most clichés of a typical beer drinker being a middle-aged urbanite with a strong desire for pork and potatoes, however, disliking cheese and wine.

2019 | Finance Research Letters, 31.

Considering a relatively large cross-section of ten cryptocurrencies, we test for the existence of well-known equity seasonality patterns with respect to cryptocurrency returns, volatility, trading volume and a spread estimator. Whilst we do not observe consistent and robust calendar effects in cryptocurrency returns and consequently cannot reject the weak-form market efficiency, we do observe robust patterns in trading activity. As such, trading volume, volatility and spreads are on average lower in January, on weekends and during the summer months. Besides, we also report a strong impact on the direction and significance of monthly seasonality patterns due to the stark market sell-off in January 2018, which has to be accounted for.

2018 | Journal of Investing, 27(2), 76-89.

This article makes use of a unique dataset accounting for public trust towards alternative institutions within 27 countries, thereby yielding a local perspective on the trustworthiness of governments, the media, and the business environment as a whole. The results indicate that this local perspective adds potential value for forming rational investment decisions in a global setting that are not distorted by foreign perspectives. The author takes the perspective of a U.S. investor by considering U.S. dollar–denoted international equity indices and building trust-based portfolios, which are compared to traditional market-capitalization-weighted, GDP-weighted, ΔGDP-weighted, and equal-weighted portfolio schemes. They show that accounting for trust does entail valuable information for international equity allocation, especially with respect to fast-growing emerging economies.

2018 | Finance Research Letters, 26, 223-229.

We analyze the characteristics of 22 leading equity indices and discuss common biases relative to their respective national equity markets. Findings demonstrate systematic risk-factor exposures on a universally consistent basis in form of a large-cap, low beta, growth and contrarian tilt. These systematic biases are also relevant given their knock-on effect on public changes in consumption due to a changes in net wealth, especially as more private investors are utilizing ETFs on the basis of these indices rather than delegated mandates in form of mutual or pension funds.

2017 | Quarterly Review of Economics and Finance, 66, 159-168.

Economists fulfilling a public mission – namely academics, Fed and government employees – demonstrate a tendency towards being pessimistic, whereas bankers in general are overly optimistic about future stock market developments. We show that these characteristics are of particular relevance and statistically significant during economic recessions and stock market downturns. Whilst investment bankers have always shown a tendency towards being optimistic, other affiliations are increasingly following their footsteps and most dominantly so for short-term forecasts. Especially during the most recent crises, their expectations of fast rebounds remained largely unsatisfied, questioning the applicability of economists’ forecasts as we move forward.

2014 | Journal of Portfolio Management, 40(4), 28-41.

The intuitiveness and practicality of mean–variance portfolios largely depend on the accuracy of moment estimates, which are subject to large estimation errors and are conditional on time. The authors propose a model that accounts for factor dynamics in a Bayesian setting, in which they endogenously derive the effect of estimation accuracy on the posterior distribution from a linear predictive regression model. By doing so, they capture upside return potential for periods of high factor-explained variance, while constraining downside risk for periods of low predictive quality. Results are robust in a simulation and an empirical setting.