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E4: Empirical Finance 2
Time:
Saturday, 20/Sept/2025:
11:00am - 12:30pm
Session Chair: Mathis Moerke
Location: Building 3, Room D 006
Presentations
11:00am - 11:30am What could have been - counterfactual thinking among retail investors
Lukas Mertes 1 , Marcel Quint2
1 University of Mannheim, Germany; 2 LMU Munich, Germany
Discussant: Mathis Moerke (University of St.Gallen)
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.
11:30am - 12:00pm 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.
12:00pm - 12:30pm Do ESG ratings provide novel information? Evidence from Machine Learning
Mathis Moerke , Jonas Romer, Markus Schmid
University of St.Gallen, Switzerland
Discussant: Wangzhen Xia (Technical University of Munich)
In this paper, we use state-of-the-art machine learning models to analyze whether ESG scores, or their components, have predictive power for stock prices. Our results show that neither ESG scores nor their sub-scores improve predictive performance of machine learning models when models can select from an extensive set of financial predictors used in the asset pricing literature. This finding suggests that the information of ESG scores is either reflected in stock prices or that commercial ESG scores and sub-scores are noisy measures of firms’ ESG quality and thus have no predictive power of stock prices.
