New Paper on Insider Trading and Short Selling Regulation 21.04.2022
Modern capital markets are subject to many interventions and regulations, some of which curtail the implementation of specific trading strategies in a market. While we understand much of these regulations’ individual effects, the picture is less clear about their joint effects. A new paper, jointly authored by Robert Merl (University of Graz), Thomas Stöckl (MCI Management Center Innsbruck) and myself considers the interaction of two regulations, namely rules limiting shorting of assets and cash, and rules limiting insider trading. For these regulations, prior research shows spikes in short-selling activity around the revelation of insider information, which different studies trace to different causes. Among other results, we find that both allowing short positions and allowing informed trading causes informed traders to increase their market activity and causes mispricing and spreads to diminish. Nevertheless, we find no evidence for significant interaction effects between the two regulations.
Merl, R., Stöckl, T., Palan, S., 2022. "Insider trading regulation and shorting constraints. Evaluating the joint effects of two market interventions", Journal of Banking and Finance, 106490, DOI: https://doi.org/10.1016/j.jbankfin.2022.106490.
Member of the G53 Financial Literacy and Personal Finance Research Network07.12.2021
I am honored to have been asked to become a founding member of the G53 Financial Literacy and Personal Finance Research Network (G53 Network). Founded by Annamaria Lusardi, the Director of the Global Financial Literacy Excellence Center (GFLEC) and a pioneer in financial literacy research, the G53 network aims to promote research into financial literacy and personal finance along the lines of - but in a more globalized manner than - an NBER research program. The G53 network is named after the JEL code for research into financial literacy and was - fittingly - started with 53 researchers.
Taking part in first large-scale crowd research project in finance
Managing Director of the Society for Experimental Finance18.06.2021
After the international SARS-COV-2 pandemic necessitated the cancellation of the Society for Experimental Finance's 2020 annual meeting, the University of Innsbruck organized this year's meeting online via GatherTown. The attendees enjoyed a total of 88 paper presentations, 2 keynotes (by Annamaria Lusardi and Stefan Nagel) and 2 talks with a view (by Michael Kirchler and Roberto Weber). As part of the program, the society held its annual meeting, which elected a new managing board, with Sascha Füllbrunn as Secretary, Anita Kopanyi-Peuker as Treasurer and myself as Managing Director. I look forward to this responsibility and challenge.
My PhD student Josef Fink completes his degree with top grade07.05.2021
Today Josef Fink completed his doctoral studies with a dissertation defense that the committee graded "Sehr gut", the top grade in the Austrian grading system. Josef's dissertation, titled "Experiments on the Post-Earnings-Announcement Drift", was also graded "Sehr gut". In its core, it is made up of three papers studying the phenomenon of stock prices drifting in the direction of the surprise component of a company's announced earnings for up to four quarters following the initial announcement.
In his first paper, titled "A Review of the Post-Earnings-Announcement Drift" and published in the Journal of Behavioral and Experimental Finance, Josef provides the most comprehensive (by a wide margin) review of the literature on the PEAD phenomenon to date. In his second paper, titled "Earnings Autocorrelation and the Post-Earnings-Announcement Drift", Josef studies the role of autocorrelation in the earnings process on the drift. In his third paper, titled "Trading Frictions and the Post-Earnings-Announcement Drift", Josef investigates the role of frictions (i.e., a short-selling ban and transaction fees) on the drift.
I am proud of Josef and congratulate him to this impressive achievement!
New working papers out31.03.2021
The first quarter of the year has been a busy one, with two papers submitted and two new working papers published. In "Trading frictions and the post-earnings-announcement drift", Josef Fink, Erik Theissen and I study the effect of a short selling ban and transaction fees on the post-earnings-announcement drift. We find evidence for lower trading activity and higher asset prices in the presence of these types of frictions.
In "A Critical Perspective on the Conceptualization of Risk in Behavioral and Experimental Finance", Felix Holzmeister, Christoph Huber and I discuss the conceptualization of "risk" in finance, urging researchers to clearly distinguish between risk preferences, risk perceptions, and risk taking.
I welcome all thoughts and comments on these papers and topics!
Free, online z-Tree course2020-12-14
I have spent the past weeks and months preparing a fully-fledged online z-Tree course, which is free for everyone (published under a CC-BY-SA license). It is designed to allow beginners with no prior z-Tree experience to learn all they need to start programming their own simple and not-so-simple experiments. I hope it will prove helpful to you and welcome any feedback you may have!
New video explaining tables and scope in z-Tree2020-11-23
Have you sometimes struggled to understand how tables and the scope operators work together in z-Tree? I am just in the process of preparing an online z-Tree course, putting my new recording studio equipment to good use. In the process of preparing this course I have prepared a short (16min) video, explaining this crucial z-Tree concept. Be sure to check it out below, and let me know if you have any feedback!
New paper studying the post-earnings-announcement drift2020-10-23
Together with Josef Fink and Erik Theissen, I have recently published a new working paper stuying the post-earnings-announcement drift (PEAD). In the first experimental study of this pricing anomaly, the three researchers show that autocorrelation in earnings surprises is not a necessary condition for PEAD. Rather, such autocorrelations strengthens a drift that is also present in its absence. The paper then goes on to document that the drift can be profitably exploited even after accounting for transaction costs, and that greater earnings surprises are connected to greater drift, likely due to investors underreacting to earnings autocorrelation.
Link to the paper: https://ssrn.com/abstract=3713106
New paper studying the disposition effect2020-07-21
I have just published a new working paper studying the disposition effect. Following a seminar presentation at the Université catholique de Louvain in October of last year, I joined the research project of Rudy De Winne and Nhung Luong, who study whether investors whose behavior exhibits the disposition effect choose different order types and different limit prices than investors less prone to the disposition effect. We are able to report strong evidence supporting this conjecture from a comprehensive analysis of a large dataset of millions of trades by thousands of Belgian retail investors. For the next version of the paper, we aim to run experiments to document causal relationships.
Link to the paper: https://ssrn.com/abstract=3657007
Short video explaining the review and publication process2020-04-29
I recently looked for a short video explaining how the review and publication process works at research journals. I intended to (and did) use it to give the students in one of my courses a short primer, before discussing some referee reports with them.
I found the following video, which does the job so nicely that I decided to share it with you:
Interview by TOP-Gewinn2020-02-24
I was recently interviewed by Martin Maier from GEWINN, a leading Austrian business magazine. We talked about my research with Jürgen Huber and Stefan Zeisberger into the factors driving risk perception and, indirectly, prices in capital markets. Read the full interview at:
PhD student receives grant from Austrian Academy of Sciences2020-02-04
The year started on a positive note when we learnt that Kerstin Mitterbacher, a PhD student of mine, was granted a 2-year DOC stipend by the Austrian Academy of Sciences. She will now be able to focus her full attention on her research in the project titled "Migration and Integration". The objective of Kerstin's work will be to show how the willingness of migrants to integrate into the society of their destination countries and the willingness of destination country citizens to welcome such migration and integration interact, and which factors promote successful outcomes. Kerstin will run laboratory experiments at the University of Graz' Max Jung Lab together with Jürgen Fleiß and myself.
No more "now where do I have my USB drive?"2019-11-28
When giving presentations at conferences or in research seminars, there is always the question of how to get the presentation onto the presenter computer. This involved me having to remember to put the presentation on my USB drive, in the latest version, rembering to bring the USB drive, searching for my USB drive in the seminar room, getting the computer to recognize my USB drive, and finally getting my presentation onto the computer. I have now found a much more convenient option:
Create a folder for your presentations in your Dropbox, Onedrive, or whatever cloud space you favor1
Create a share link to the folder
Use an URL shortener (like bitly.com, tiny.cc, TinyURL.com, ...) to shorten the unwieldy link to something more manageable, like bit.ly/StefansTalks
Once you have prepared the infrastructure this way, simply save the presentation to the local presentation folder (and wait long enough for your cloud space client to upload it). When at the presenter computer, just head to your version of bit.ly/StefansTalks and fetch your presentation from there.
Now just remember to bring your good ol' USB drive in case the presenter computer does not have2 internet ...
1 If you do not have one yet, just choose one of the many free options out there. The limited amount of cloud space you get this way is easily enough for your presentations of the next few centuries. Choose a provider that allows password-protecting sharing links, if you need that.2 Yes, I relalize computers do not "have" internet, but are connected to the internet. Still, I get the impression the phrase is catching on. Let me know when it has made it into the Oxford Dictionary, so I can delete this footnote.
New paper in Experimental Economics2019-11-11
The term "wisdom of crowds" is well-recognized at least since the publication of James Surowiecki's book with the same title. It refers to the phenomenon that the aggregated estimates of many different individuals often constitute a surprisingly accurate predictor of the unknown quantity or quality to be estimated. In our latest paper, co-authored with Jürgen Huber and Larissa Senninger from the University of Innsbruck, I study which aggregation mechanism performs best. We compare simple means and medians and more complex, market-based mechanisms. We find that the continuous double auction outperforms all other mechanisms in terms of prediction accuracy.
Palan, S., Huber, J., Senninger, L., Forthcoming. Aggregation mechanisms for crowd predictions, Experimental Economics, DOI: 10.1007/s10683-019-09631-0.
New paper in Journal of Banking and Finance2019-09-16
What do investors perceive as risky? And if what they perceive as being risky differs from what finance theory suggests constitues risk - does the market eliminate any potential biases from individual risk perceptions? These are the core questions pursued in a joint paper with Jürgen Huber and Stefan Zeisberger and recently published (online first) in the Journal of Banking and Finance. Titled "Does Investor Risk Perception Drive Asset Prices in Markets? Experimental Evidence", the paper finds that investors nearly exclusively focus on an asset's probabilty of yielding negative returns. In other words, risk perception is driven by the probability of losses, while for example the size of the potential losses does not seem to receive investors' attention.
While this result confirms prior research by some of the authors, finance theorists would rely on a market to eliminate any individual biases, yielding efficient prices, which properly reflect more comprehensive risk measures. Yet the paper's most important finding is precisely that this mechanism does not work. The results show that real-money experimental asset market prices fully reflect the individual risk perceptions. Assets with a higher probability of negative returns fetch lower prices in the market and vice versa. This has important implications for markets outside of the lab, for individual investors, and for investment advisors, who should account for this bias.
Huber, J., Palan, S., Zeisberger, S., 2019. Does Investor Risk Perception Drive Asset Prices in Markets? Experimental Evidence, Journal of Banking & Finance 108(105635)., DOI 10.1016/j.jbankfin.2019.105635.
New paper in Journal of Economic Dynamics and Control2019-07-18
A joint paper with Marcus Giamattei, Jürgen Huber, Johann Graf Lambsdorff and Andreas Nicklisch, titled "Who inflates the bubble? Forecasters and traders in experimental asset markets", has recently been published (online first) in the Journal of Economic Dynamics and Control. It experimentally studies the interaction of traders and analysts and teases apart their respective roles in producing bubble patterns. We find the greatest bubbles in settings where the roles of trader and analyst are clearly separated, with traders trying to maximize their trading profit and analysts being paid for their forecasting accuracy.
Giamattei, M., Huber, J., Lambsdorff, J. G., Nicklisch, A., Palan, S., 2020. Who inflates the bubble? Forecasters and traders in experimental asset markets, Journal of Economic Dynamics and Control 110, DOI: 10.1016/j.jedc.2019.07.004.
The University of Graz has elected a new senate in which I will serve as a senator from October 2019. I look forward to this new challenge and to working for my alma mater in this new capacity!
Funding for research into post-earnings-announcement drift2019-03-21
The Austrian Science Fund (FWF) has decided to fund my joint grant application with Erik Theissen, titled "Experiments on the Post-Earnings-Announcement Drift". In this research proposal, we plan to study the causes and mechanisms behind the phenomenon that stock prices tend to drift upward (downward) over extended periods of time following positive (negative) earnings news. Given the funding now granted, my team and I will be able to hire a PhD student to conduct experiments to explore several potential explanations for why post-earnings-announcement drift occurs.
Annual report of research platform2019-02-05
Our research platform FiRe has just published its annual report. We had a very productive year and report on a lot of research activity, including new initiatives like a public lecture series, the FiRe lecture.
Video illustration of recent paper2018-12-17
My recently published paper, 'Immaterial and monetary gifts in economic transactions: evidence from the field', has now been made more accessible to the interested scientific community and the general public by ways of a Youtube video. Created by the University of Innsbruck group around my co-author Michael Kirchler, the video shows how being nice to the salesperson (by giving a compliment, or tipping while ordering) nets customers more ice cream or heavier Durum Doner.
ProSieben Galileo report2018-12-17
I recently had my eleven minutes of fame when I featured in a report in ProSieben's (a TV station) Galileo magazine. Galileo presents news from the realm of science and technology to a general audience of between 1m and 2m German-speaking viewers. In this case, we did a little experiment to explore which 'tricks' a waiter can use to earn larger tips. See for yourself how that worked out!
New GIMS version2018-10-22
I have just posted the latest version of my free, open-source asset pricing program GIMS. Version 8.2.1 now runs on the latest z-Tree version (4.1.5) which should hopefully give it significantly enhanced performance (I have yet to test it with a full lab.)
And since it is so nice, I also want to share with you the first Japanese GIMS implementation I have seen. My thanks for the screenshot to Takao Kusakawa!
Successful grant application2018-07-27
A joint grant application by Thomas Stöckl (MCI Management Center Innsbruck, serving as principal investigator) and myself has received funding by the Austrian National Bank (OeNB). Titled Putting a spotlight on insider trading legislation - A cross-examination using laboratory markets, the research project consists of three separate studies of insider trading and the effect of legislation. Specifically, they focus on the effect on the possibility to short sell on informed and uninformed traders' behavior and profits, on traders' choice of a regulated vs. a non-regulated market, and on whether traders themselves would vote for legislation against informed trading or not.
Funded with € 147,000, the project will run for three years and will bring together pre- and post-doc researchers in Graz and Innsbruck.
Using DataCamp in class2018-07-25
This fall term, I will be using DataCamp for the classroom in one of my courses. I have been teaching the statistics software R in a number of my classes in the past few semesters using a self-created set of introductory exercises. This will, however, be only my second time using DataCamp, and the first time I will be using a self-created course chapter.
DataCamp lets users learn programming languages and software using a cool hands-on learning approach in which users learn about the language and apply it seamlessly in the same interface. Apart from offering several excellent free courses, I have now become aware that they provide a full classroom management system and access to their premium content for free for academics. So I have assembled a custom-made curriculum, consisting of chapters from a premium course plus my first self-generated DataCamp course, basically an introduction to simple plots in R. Check it out and let me know what you think and what I can improve!
Do you have experience using DataCamp for the classroom, or in creating your own DataCamp courses? I would be interested in sharing notes and best-use examples.
New paper in Journal of Economic Psychology2018-07-03
A joint paper with Thomas Stöckl, titled "Catch me if you can. Can human observers identify insiders in asset markets?", has recently been published (open access) in volume 67 of the Journal of Economic Psychology. This is the second paper resulting from a large experiment into the behavior of insiders and uninformed traders in markets variably characterized either no regulation or by regulation forbidding trading by informed insiders. While the first paper focused on the behavior of traders and on the effect on market-level variables, the new paper discusses whether and how market observers succeed in identifying informed traders solely from studying market trading data.
Stöckl, T., Palan, S., 2018. Catch me if you can. Can human observers identify insiders in asset markets?, Journal of Economic Psychology 67, 1–17, DOI: 10.1016/j.joep.2018.04.004.
New paper in Journal of Behavioral and Experimental Finance2018-03-13
A joint paper with Christian Schitter, titled "Prolific.ac — A subject pool for online experiments", has today been published (open access) in volume 17 of the Journal of Behavioral and Experimental Finance. It is concerned with a platform for recruiting participants for online experiments, a topic of growing relevance for the entire social sciences. After briefly discussing key advantages and challenges of online experiments relative to lab experiments, we trace the platform’s historical development, present its features, and contrast them with requirements for different types of social and economic experiments.
Palan, S., Schitter, C., 2018. Prolific.ac—A subject pool for online experiments, Journal of Behavioral and Experimental Finance 17, 22–27, DOI: 10.1016/j.jbef.2017.12.004.
(Note that the paper was accepted last year, before I became co-editor of this journal.)
New editor position with Journal of Behavioral and Experimental Finance2018-01-09
At the beginning of the year, I have started my tenure as Co-Editor-in-Chief of the Journal of Behavioral and Experimental Finance (JBEF). Founded only in 2014, JBEF welcomes full-length and short letter papers in the areas of behavioral finance and experimental finance. The focus is on rapid dissemination of high-impact research in these areas. The journal has been growing nicely and is on track to receive an impact factor in 2019. The current journal metrics are a CiteScore of 1.13, Source Normalized Impact per Paper (SNIP) of 0.978 and a SCImago Journal Rank (SJR) of 0.430.
I look forward to an exciting time doing my best to promote JBEF and, together with the second Co-Editor-in-Chief, Michael Dowling, to lead it to become a well-respected field journal in the near future. If you work in the field, please consider JBEF for your next paper.
Ice cream study generates media feedback2017-08-16
My joint paper with Michael Kirchler, "Immaterial and Monetary Gifts in Economic Transactions. Evidence from the Field. " has been accepted at Experimental Economics. In it, we explore the effect of complimenting or tipping the salesperson in a fast-food restaurant on the amount of ice cream or the weight of durum doner provided. The twist about the design is that we give the compliment or tip prior to the product's preparation.
We find that giving a compliment results in about 10% more ice cream in the cone, and tipping (about 10%) results in about 17% more ice cream. In the picture to the right, the left-hand cone was ordered normally, while the right-hand cone resulted from ordering and adding the sentence "You have the best ice cream in town".
In the case of the durum doner, the effects are not as strong (it is harder to pack more ingredients into a fixed-size bread), but in the compliment treatment, they increase over time. When we visit the same salesperson five days in a row, doner weight increases by 7% (23g) relative to the baseline when we compliment, while it stays relatively constant at 4% (17g) higher than in the baseline when we tip.
There has also been significant media reaction to the publication. A selection (see the full list in Media echo):
Die Presse (German)
Frankfurter Allgemeine Zeitung (German)
Kronen Zeitung (German)
Der Standard (German)
Süddeutsche Zeitung (German)
Kirchler, M., Palan, S., 2018. Immaterial and monetary gifts in economic transactions. Evidence from the field, Experimental Economics 21(1), 205–230, DOI: 10.1007/s10683-017-9536-1.
Article on insider trading research in "Die Presse"2017-07-24
"Die Presse", one of Austria's leading daily newspapers, recently published an article on my and Thomas Stöckl's research into insider trading legislation, mainly referring to our forthcoming paper in Journal of Financial Markets. The German-language article was titled "Der Börse sind Paragraphen egal" and can be viewed on the newspaper's website.
"The Case for Anarchy", by David Friedman2017-06-07
David D. Friedman recently visited the University of Graz and gave a talk on his ideas about a society without government. Hosted by the Economics Club Graz and the Austrian Libertarian Movement, he made the case that private institutions could provide the same services central governments do in most countries. While I see several problems with aspects of his plan, he offered some interesting ideas and a point of view that provokes thought. David allowed for recordings to be taken, so feel free to listen to his talk, in full, below.
Good news for the 'dismal science'2016-07-07
In a recent article, the Economist picked up on the results of a replication study in experimental economics, published in Science. It favorably compares experimental economics to other experimental disciplines, giving high grades for economics' performance. Way to go, experimental economics!
GIMS cited in Science2016-03-08
Since its publication in 2015, my asset market software GIMS ("Graz-Innsbruck Market System") has been downloaded several times and I have helped a number of researchers get started using it. Despite the interest, however, no study using GIMS had been published prior to today, leading me to fret a little bit about the delay between GIMS' publication and the appearance of studies utilizing it (my own first papers using GIMS are also still under preparation).
Now however I am proud to announce that a recent paper in Science, titled "Evaluating replicability of laboratory experiments ineconomics" is the first paper to be published reporting results obtained using GIMS. In this paper, my colleagues from the University of Innsbruck, Felix Holzmeister, Jürgen Huber, Michael Kirchler, and Michael Razen (with co-authors) study how well economic experiments replicate. They find that some 61% out of a set of 18 studies published in American Economic Review and Quarterly Journal of Economics in 2011 through 2014 replicate in their study, which uses a 90% power level to detect the original effect. Congratulations on this great and - from the view of the discipline - important paper, and thanks for using GIMS!
Website of the Finance Research Platform Graz online!2015-11-25
I am pleased to announce that the website of the Finance Research Platform Graz (FiRe) is now online under http://www.finance-graz.net. Let me know what you think and of course get in touch if you want to attend platform events or are thinking of possible cooperation projects!
Welcome Prof. Theissen, and first Research Day of the Finance Research Platform Graz2015-11-13
This week was the first time our newly appointed research Professor, Erik Theissen, who normally works at the University of Mannheim, joined us in Graz. Prof. Theissen has a five-year appointment at the University of Graz and will visit us about once a quarter to work on joint research. After he presented his own research agenda on Tuesday, Wednesday marked the first "Research Day" of the Finance Research Platform. We heard six great presentations and had animated discussions about different research approaches, study designs, motivations, and publication strategies.
Overall, the participants' feedback was very positive and we created momentum which we will carry over into our research work. I wish to thank all the participants for their presentations and their input into the discussion! I also look forward to Prof. Theissen's next visit (December) and our next research day (probably February).
Sightseeing in Graz2015-09-23
I just created a map for a colleague who will be visiting Graz and was asking for directions for a stroll around town. If you are also thinking of visiting Graz - feel free to follow my suggestions!
"Two heads are less bubbly than one" prezified2015-09-14
Cheung, S. L., Palan, S., 2012. Two Heads are Less Bubbly than One. Team Decision-Making in an Experimental Asset Market, Experimental Economics 15(3), 373–397, DOI: 10.1007/s10683-011-9304-6.
Newest GIMS version supports trading in multiple assets2015-07-27
I have just posted the latest version of my free, open-source asset pricing program GIMS. Version 7.2 supports trading in multiple markets/assets and offers a new results screen for the sealed bid-offer call auction practice period. If you are interested, check out my GIMS download page, where you can find the software including all documentation. Do not hesitate to mail me with questions and feedback!
Experimental Finance 2016 beats all records2015-06-21
With more than 100 participants after last year's 62, this year's Experimental Finance conference beat all our expectations. We had 68 presentations, plus two keynotes by Nobel prize winner Vernon Smith and co-editor of the Journal of Finance Bruno Biais, respectively. Thanks to the organizers Sascha Füllbrunn, Utz Weitzel and Michael Kirchler for the beautiful venue, perfect service and smooth organization!
Scary news about scientific integrity [German]2015-06-03
Michael Kirchler recently made me aware of a new [German] article on scientific integrity, published in "Die Zeit": http://www.zeit.de/2015/19/sozialpsychologie-studien-fachmagazine-glaubwuerdigkeit. Scary stuff... We definitely need more replication studies to ensure proper conduct!
Journal of Economic Surveys article receives high marks2015-06-02
I was recently made aware that my article in the Journal of Economic Surveys has been highly ranked in a number of categories. See the Altimetric patch to the right for details. Thanks to all readers and citers, and a special thanks to Charles Noussair and Steve Tucker for editing the special issue this article was published in!
Palan, S., 2013. A Review of Bubbles and Crashes in Experimental Asset Markets, Journal of Economic Surveys 27(3), 570–588, DOI: 10.1111/joes.12023.