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The purpose of this paper is to investigate whether downside-risk measures help to explain why households largely refrain from investing in Exchange Traded Funds that replicate broad and internationally diversified market indices, so-called XTFs, although studies frequently recommend to do so.

The paper analyzes whether evaluating risk in terms of downside-risk measures which reflect households' interpretation of risk closer than the standard deviation (SD) of returns, yields less risk-return-enhancements, and thus, fewer incentives for households to invest in XTFs. Household portfolios are compiled by combining stylized portfolio compositions that involve multiple asset classes and German households' security holdings. The data set covers the period from January 2014 to December 2016 and includes 47,388 securities.

The results indicate that none of the downside-risk measures can help to explain the reluctance of households to invest in XTFs. On the flip side, the results show that all stylized household portfolios can enhance the risk-return position from employing XTFs, regardless of the underlying risk measure. This supports the advice to invest in XTFs and extends it upon households that evaluate risk in terms of downside-risk.

To the best of the authors' knowledge, this study is the first to investigate risk-return-enhancements from XTFs while simultaneously considering various downside-risk measures and multiple asset classes of household portfolios.

The purpose of this paper is to derive the determinants of young adults’ subjective and objective risk attitude in theoretical and real-world financial decisions. Furthermore, a comparison of the factors that influence young adults’ and older adults’ risk attitude is provided.

The paper relies on an experimental setting and a cross-sectional field study using data of the German central bank’s (Deutsche Bundesbank) PHF-Survey.

Young adults’ objective risk aversion is not constant but increases with stake sizes. Furthermore, young adults’ subjective risk attitude is a better predictor for their objective risk attitude than a set of commonly employed socio-demographics and economics like age or income. Moreover, young adults’ subjective risk attitude works as a mediator for the influence of their investable financial wealth on their objective risk attitude. Although young adults’ subjective risk attitude shows a gender effect, the influence of young adults’ gender on their objective risk attitude decreases with higher stake sizes. Compared to older adults, young adults generally show a similar degree of subjective risk aversion. However, due to stronger financial restrictions, young adults show a higher degree of objective risk aversion.

Although individuals’ financial outcomes depend on the financial behavior established in young adulthood, there is no study that simultaneously analyzes the determinants of young adults’ subjective and objective risk attitude in real-world financial decisions with a focus on young adults as a separate age group. The paper closes this gap in literature and additionally provides a comparison of the subsamples of young adults and older adults. The analysis in this paper reveals that young adults’ lower engagement in financial markets is primarily driven by their tight budget and not by a fundamental different subjective risk attitude.

Retail investors use information provided by mutual fund rating agencies to make investment decisions. This paper aims to examine whether the ratings provide useful information to retail investors by analyzing the rating migration and closure risk of mutual funds that received Morningstar’s mutual fund ratings from 2005 to 2012.

The research design differentiates between buy-and-hold investment strategies and dynamic investment strategies. To assess the information content of mutual fund ratings for buy-and-hold investment strategies, the rating migration based on the first and the last mutual fund rating during two-, four-, six- and eight-year horizons is determined. With respect to dynamic investment strategies, the number of rating changes per fund on a monthly basis during these time horizons is calculated.

Mutual fund rating persistence is low or even inexistent, in particular, during longer time periods. Only for lower-rated funds, the rating appears to indicate higher risk of fund closure. In addition, mutual funds face a large number of up to 38 monthly rating changes in the eight-year window.

Mutual fund rating persistence has hardly been analyzed for funds offered to retail investors so far. This paper clearly points out that because of the extensive rating migration and the high number of monthly rating changes, retail investors barely benefit from using mutual fund ratings.

The purpose of this study is to analyze whether differences in market-wide levels of investor personality influence experimental asset market outcomes in terms of limit orders, price levels and price bubbles.

Investor personality is determined by a questionnaire. These data are combined with data from 17 experimental asset markets. Two approaches are used to estimate market-wide levels of investor personality. First, the market-wide average of each personality trait is determined; second, the percentage of individuals with comparable personality in a market is computed. Overall, 364 undergraduate business students participated in the questionnaire and the experimental asset markets.

Limits and transaction prices are higher in markets with higher mean values in participants’ extraversion and openness to experience and lower mean values in participants’ agreeableness and neuroticism. In markets with lower mean values of subjects’ openness to experiences more overpriced transactions are observed. In markets with a higher proportion of extraverted subjects and a lower proportion of neurotic subjects higher limits and transaction prices are observed. Bubble phases last longer in markets with a higher proportion of extraverted and a lower proportion of neurotic subjects.

Overall, the findings suggest that market-wide personality levels influence market outcomes. As a consequence, market-wide levels of personality help to explain prices in auctions with limited number of participants. Additionally, studies that analyze the influence of subjects’ characteristics, including risk aversion, emotional states or overconfidence, on market outcomes should also consider personality traits as potential underlying factor.

Current trends in financial services are characterised by two intertwined developments. First, increasing digitalisation provides opportunities to invest or raise money through channels that have not been available with more traditional financial services. Crowd-investing and social-trading platforms act as new intermediaries. Similarly, automated advice (robo-advice) is attracting increased attention. Second, the financial crisis of 2007–2010 is associated with a considerable decline in trust in financial institutions, even more so in Iceland, which had experienced a complete collapse of its banking system. Despite the evaporation of trust in their banking system, Icelandic consumers were largely bound to use Icelandic financial institutions because capital controls were in place since the financial crisis until 2017, which limited investors’ opportunities to, for example, diversify their portfolios internationally. As financial decisions are inherently risky and since financial services have the characteristics of credence goods, those who wish to use financial services need to trust financial intermediaries or the immediate contractual partner. The purpose of this chapter is to examine the role of trust in the context of increased digitalisation, and to discuss steps to establish trust in digitalised financial services. Among other items, we discuss the information requirements accompanying financial products and financial institutions, data protection and liability in the context of emerging digitalisation. Our work holds implications for individuals, financial service providers, policy makers and supervisory authorities.

The purpose of this paper is to analyze whether key investor information documents (KIDs) provided by suppliers/issuers help retail investors to understand the key characteristics of financial products. KIDs are fact sheets composed to describe the characteristics of financial products in a brief, standardized and straightforward manner.

In the empirical analysis, the authors evaluate different versions of KIDs and examine whether they meet minimum requirements to provide benefits for consumers.

The empirical results suggest that subjects assess KIDs of suppliers/issuers merely as moderately appropriate to grasp the key characteristics of financial products. In contrast, neutral benchmark KIDs are generally evaluated as being superior to those of suppliers/issuers, which at best meet current legal requirements.

The authors argue that a major reason for these findings is consumer policy’s assumption of omnicompetent subjects in line with the neoclassical idea of a Homo economicus. This assumption, however, is far from being both realistic and practical.

Intangible assets are regarded as the future value drivers of company performance. However, hardly anything is known about the actual importance and influence of intangible assets. The purpose of this paper is to fill this gap, so the authors analyse the German stock market index DAX and accomplish a survey among the German Certified Public Accountants (CPAs) concerning intangible assets.

In a first step, the authors analyse the balance sheet data and the corresponding notes of the companies with regard to reported values of intangible assets and applied valuation methods. The sample period covers the years from 2005 to 2008. In a second step, the authors analyse the statements of the German CPAs with regard to intangible assets. The authors sent a standardised questionnaire to all 180 offices of the top ten German auditing firms.

The results indicate that intangible assets have gained in importance, while information on valuation methods is still scarce. According to the German CPAs, the current influence of intangible assets on company performance is on a high level and even will increase during the next few years. The mostly used valuation approach for the fair value measurement of patented technologies is the income approach. Furthermore, the accounting standards leave room for accounting policy – a result which casts doubt on the reliability of financial statements.

For the first time not only annual balance sheet data but also corresponding notes regarding intangible assets are analysed. The findings are connected with a survey of an expert group for the valuation of intangibles.

The authors aim to analyze whether the results of the 1980 to 2008 US presidential elections influence the stock market performance of eight industries and they seek to examine factors that are expected to affect firms' stock returns around these elections. Their empirical analysis reflects firms' exposure to government policies in two ways.

First, to determine whether investors presume any Democratic or Republican favoritism towards or biases against certain industries, the authors perform an event study for each of the eight industries around the eight elections. Second, the authors include the firms' marginal tax rate as proxy for the firms' exposure to uncertainty about fiscal policy in a regression analysis.

The authors do not find a consistent pattern in industry returns when comparing the effect of Democratic vs Republican victories. However, the extent of the reaction differs among industries. The victory of a Democratic candidate rather negatively influences overall stock returns, while the results are rather mixed for Republican victories. A change in presidency from either a Democratic to a Republican candidate or vice versa causes stronger stock market effects than re‐election or the election of a president from the same party. The authors also find that the firms' marginal tax rate is positively correlated with abnormal stock price returns around the election day.

The results are relevant for academics, investors and policy makers alike because they provide insight on the question whether stock market participants respond to expected changes in policy making as a result of presidential elections.