Abstract: Despite growing concerns from regulators about potential price discrimination against sustainable investors, empirical evidence is lacking. To address this gap, we conduct two lab-in-the-field experiments with 415 professional financial advisors from the US and Europe. Our results show that these advisors impose a premium on sustainable investors compared to conventional investors. This premium persists even when differences in effort, skill, and costs, as well as higher gains from trade are ruled out. Notably, advisors charge the highest fees to sustainable investors with low financial literacy, while sustainable investors with high financial literacy pay no premium at all. These results are consistent with price discrimination.

The paper was presented at (including scheduled) the Western Finance Association 2023, the GRASFI Conference 2024, the Experimental Finance Conference 2021, the Research in Behavioral Finance Conference 2022, the European Research Network on Philanthropy (ERNOP) Conference 2021, as well as the University of Bremen, the Erasmus School of Economics, the Leibniz Institute for Financial Research SAFE, Utrecht Uiversity, the University of Innsbruck, Radboud University, the University of Helsinki, Aston Business School, the University of Kassel,  the University of Montpellier, the University of Maastricht, the briq Institute on Behavior and Inequality, the University of Zurich, and the University of Rome.

Media coverage: Busines Insider NL, BNR Nieuwsradio

Abstract: Using a large European bank dataset, we show that in response to negative ESG news exposing controversial business practices of dividend-paying firms, investors amplify their consumption from dividend income, compared to dividends from non-controversial firms. This increased consumption is immediate, occurring on the dividend payout day. We control for selection effects and rule out attention and adjustments to the dividend payout size as mechanisms. Instead, our results are consistent with laboratory evidence showing that people who earn money by violating social norms counter resulting negative emotions with mood-enhancing behavior, such as increased consumption. This aligns with the principles of emotion regulation theory. We demonstrate the applicability of emotion regulation theory outside of the laboratory in an important real-world context, financial markets. 

The paper was presented at (including scheduled) the Research in Behavioral Finance Conference 2024, the German Finance Association (DGF) 2023, as well as the University of Montpellier and Aarhus University.

Abstract: We conduct a field experiment with clients of a German universal bank to explore the impact of peer information on sustainable retail investments. Our results show that information about peers’ inclination towards sustainable investing raises the amount allocated to stock funds labeled sustainable, when communicated during a buying decision. This effect is primarily driven by participants initially underestimating peers’ propensity to invest sustainably. Further, treated individuals indicate an increased interest in additional information on sustainable investments, primarily on risk and return expectations. However, when analyzing account-level portfolio holding data over time, we detect no spillover effects of peer information on later sustainable investment decisions. 

The paper was presented at (including scheduled) the German Finance Association (DGF) 2024 as well as the University of Montpellier.

Abstract: We conduct a large-scale survey experiment with clients of a major German retail bank to examine whether the temporal framing of a tax stimulus as a permanent positive income shock affects consumption behavior. The income shock derives from the abolishment of the German solidarity surcharge on personal income taxes. Participants are randomly assigned to receive information about their additional disposable income in one of three formats: Euros per month (control), Euros per year (yearly treatment), or Euros per ten-year period (10-yearly treatment). We survey participants before the abolishment of the solidarity surcharge and find a statistically and economically significant impact of temporal framing on the intended use of the tax cut. The yearly and 10-yearly treatment groups' average intended share of the tax cut for spending is 8.0 and 9.4 percentage points lower and for saving is 5.4 and 6.3 percentage points higher compared to the control group. The treatment effect is driven by participants with low financial literacy and participants with low cognitive reflection. In line with their intentions, respondents in the yearly and 10-yearly treatments groups report having spent less and having saved more from the tax cut compared to the control group six months after the abolishment of the solidarity surcharge.

Media coverage: Spiegel Online

Abstract: We experimentally investigate the impact of delegation on investor beliefs and subsequent choices. Investors form more optimistic beliefs about the quality of their investments when they actively decide to whom they delegate, compared to a setting in which delegation is random. Further, investors who actively select their asset manager overestimate the quality of delegated investment decisions, i.e., the costly effort of their investment manager. Subsequently, these investors are overly reluctant to fire their asset manager, relative to a rational Bayesian agent. We present evidence that the mechanism involves motivated reasoning. Our results help explain stylized facts in financial markets.

The paper was presented at (including scheduled) the Experimental Finance Conference 2023.

Abstract: We show that the closure of bank branches results in less local installations of residential photovoltaic systems in Germany. The effect is driven by the closure of relationship banks, not transaction banks, indicating that better access to credit due to long-term relationships of borrowers with their banks is driving the result. Further, our findings indicate that banks’ own lending products substitute rather than complement government subsidies for green investments. This implies a double-edged role of bank branches for household investments into sustainable infrastructure and has implications for policies that aim to promote green household lending.

The paper was presented at (including scheduled) the Swiss Society for Financial Market Research (SGF) 2023.

Abstract: According to a recent amendment to the EU-wide MiFID II regulation, financial institutions are required to elicit their clients’ sustainability preferences. Through this regulation change, sustainability has found a natural entry point into consultations between financial advisors and clients. This dissertation explores the impact of sustainability-related financial advice on investment behavior. Comprising three distinct chapters, it delves into the dynamics of financial advisors' role in promoting sustainable investments. Overall, this dissertation shows that financial advisors may foster sustainable investing by providing information to clients during the buying decision, even though this information does not affect the sustainability of portfolios in the long-term. However, selling behavior is less influenced by new information on the sustainability of firms. The findings also reveal that financial advisors charge a premium for sustainable investing mandates and clients who cannot signal high financial literacy bear the burden of higher fees. 

Awards: FIR-PRI Finance & Sustainability Award for Best PhD Thesis, Netspar Thesis Award 2024 (Final Nominee)