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Counterfactuals matter - the relative Dispostion Effect
Lukas Mertes1, Marcel Quint2
1University of Mannheim, Germany; 2LMU Munich, Germany
Discussant: S. Sarah Zhang (University of Manchester)
We show that individuals consider counterfactual outcomes when evaluating their investment decisions. Using individual investors trading-data, we find evidence of a Relative Disposition Effect: The likelihood of a sale is higher for stocks that performed better than an alternative investment than for stocks that performed worse than the alternative investment. The Relative Disposition Effect exists when considering the overall market as well as the focal stock's industry as alternative investment. It is distinct from (and can even subsume) the original Disposition Effect, the Portfolio-Driven Disposition Effect, the Rank Effect, and cannot be explained by stock characteristics. The evidence thus highlights that individuals do not evaluate financial investments in isolation, but in relation to alternative investments they could have made instead.
Evaluating the Effectiveness of EU Securitization Regulation on the Performance of the SME Securitization Market
Aida Cehajic, Wangzhen Xia
Technical University of Munich, Germany
Discussant: Lukas Mertes (University of Mannheim)
This study investigates the performance of loans that are granted to small and medium-sized enterprises underlying asset-backed securities in several European Union countries before and after the 2018 EU Securitization Regulation. Using loan-level data from European DataWarehouse covering the period from 2013 to 2023, matched with the originating banks' financial data and macroeconomic indicators, we find that the Regulation is significantly associated with improved quality of securitized SME loans. The impact is stronger for deals with low-performing originating banks in terms of capital adequacy, asset quality, liquidity, and profitability. We find no significant effect of loan replenishment post implementation. Conditional upon the post-securitization period, the Simple, Transparent, and Standardized label appears to be weakly associated with better loan performance.
Racial disparities in the U.S. mortgage market: Evidence from data privacy legislation
Xiangyu Lin, S. Sarah Zhang
University of Manchester, United Kingdom
Discussant: Wangzhen Xia (Technical University of Munich)
We study the implications of state-level data privacy legislation on racial disparities in U.S. mortgage lending. Using a Difference-in-Difference-in-Differences model, we find that state privacy legislation reduces the denial gap between minority and non-minority borrowers by 4.2% and the interest rate gap by 0.09 percentage points. These effects stem from a shift toward data-driven mortgage decisions that rely more on hard rather than soft information and increased FinTech lending in minority-dense areas. With the increasing demand for FinTech lending, our results highlight the role of stronger data privacy laws in expanding credit access and promoting financial inclusion.
