Publications
Beyond preferences: Beliefs in sustainable investing
(with Victor Schauer and Martin Viehweger)
Journal of Economic Behavior & Organization, Volume 220, April 2024, Pages 584-607
We investigate the effect of investors’ pro-sustainable beliefs – the beliefs about other investors’ pro-sustainable preferences – on sustainable investing. Using an incentive-compatible coordination game that incorporates important aspects of a stock market, we elicit investors’ pro-sustainable beliefs. We find that, first, investors with pro-sustainable beliefs invest in sustainable assets, even when controlling for investors’ pro-sustainable preferences. Second, investors with pro-sustainable preferences invest more in assets with positive sustainability performance than in assets with negative sustainability performance, a result we do not obtain for investors with pro-sustainable beliefs. This finding underscores the complementary relation and importance of pro-sustainable preferences and beliefs for sustainable investing.
Working Papers
Ambiguity and the Skewness Premium
(with Ralf Elsas and Johannes Jaspersen)
Assets are priced according to the preferences of investors. Our theoretical model shows that ambiguity - that is the uncertainty about stock returns’ probability distribution - affects investors’ preferences for the skewness of stock returns. In a CAPM equilibrium, skewness premiums increase when stock returns become more ambiguous. We test this interaction empirically and find evidence for it both cross-sectionally and when considering within-firm variation. Our findings hold for both skewness in historical stock returns and expected risk-neutral skewness calculated from option prices. They cannot be explained by limits to arbitrage, news tangibility, or investor belief heterogeneity
Unexpected Returns
Unexpected returns capture deviations of future realized returns from investors’ ex-ante expectations. Using option prices to infer forward-looking expected returns for S&P 500 firms from 2002 to 2022, this paper shows that unexpected returns exhibit systematic conditional structure across firms with different limits to arbitrage. This conditional predictability strengthens with the forecast horizon, remains robust to flexible nonlinear specifications, and largely disappears when expected returns are constructed using standard asset-pricing models. The results indicate that trading frictions impede the full translation of investors’ expectations into prices, even when expected returns perform well on average.