Wolfgang Drobetz

Hamburg University | UHH · Institute for Finance and Insurance

This article examines the operating and financial performance of venture firms conducting initial coin offerings (ICOs) with different types of investors and at different points along a venture’s life-cycle. Relative to purely crowdfunded ICO ventures, institutional investor-backed ICO ventures exhibit weaker operating performance and fail earlier....

The international bond market is the largest component of the international capital markets. Previous research shows that the liability of foreignness (LOF) imposes significant costs on international debt contracting. The purpose of this study is to examine the impact of foreign institutional shareholders (FISs) on the costs of international debt c...

Machine learning-based stock market beta estimators outperform established benchmark models both statistically and economically. Analyzing the predictability of time-varying market betas of U.S. stocks, we document that machine learning-based estimators produce the lowest forecast and hedging errors. They also help to create better market-neutral a...

This paper examines the relationship between board diversity and firms’ decisions to voluntarily disclose information about their greenhouse gas (GHG) emissions. We focus on board ancestral diversity as a relatively new dimension of (deep‐level) board structure and document that it has a positive and statistically significant effect on a firm's sco...

Using an international data set that quantifies corporate environmental costs, we analyze the influence of institutional investor ownership, particularly investment horizon and investor origin, on the monetized environmental impact generated by their investee firms. Institutional investor ownership is negatively related to corporate environmental c...

What role does the selection of an investor and the timing of financing play in initial coin offerings (ICOs)? We investigate the operating and financial performance of ventures conducting ICOs with different types of investors at different points in the ventures' life cycle. We find that, relative to purely crowdfunded ICO ventures, institutional...

Crypto Funds (CFs) represent a novel investor type in entrepreneurial finance. CFs intermediate Decentralized Finance (DeFi) markets by pooling contributions from crowd-investors and investing in tokenized startups, combining sophisticated venture-and hedge-style investment strategies. We compile a unique dataset combining token-based crowdfunding...

The disclosure of corporate environmental performance is an increasingly important element of a firm’s ethical behavior. We analyze how the legal origin of foreign institutional investors affects a firm’s voluntary greenhouse gas emissions disclosure. Using a large sample of firms from 36 countries, we show that foreign institutional ownership from...

Crypto funds (CFs) represent a novel investor type in entrepreneurial finance. CFs intermediate Decentralized Finance (DeFi) markets by pooling contributions from crowd-investors and investing in tokenized startups, combining venture- and hedge-style investment strategies. We compile a unique dataset combining token-based crowdfunding (Initial Coin...

This paper evaluates the predictive performance of machine learning methods in forecasting European stock returns. Compared to a linear benchmark model, interactions and nonlinear effects help improve the predictive performance. But machine learning models must be adequately trained and tuned to overcome the high dimensionality problem and to avoid...

The valuation of start-up firms is challenging, yet highly relevant for entrepreneurs and financiers alike. We reverse-engineer fair-value multiples by comparing the firm value at the time of financing with the firm value at the time of exit. Our framework produces reliable valuation multiples from observed venture capital transactions per industry...

We examine the effect of institutional investors on the valuation of listed shipping firms. Institutional investors have a positive influence on the market value of shipping firms, confirming that institutional ownership is a “universal” corporate governance mechanism. This valuation effect is more pronounced in firms dominated by institutional inv...

Using a comprehensive set of firms from 57 countries over the 2000–2016 period, we examine the relation between institutional investor horizons and firm-level credit ratings. Controlling for firm- and country-specific factors, as well as for firm fixed effects, we find that larger long-term (short-term) institutional ownership is associated with hi...

We examine the effects of geopolitical risk (GPR) and economic policy uncertainty (EPU) on shipping freight rates using a Bayesian VAR model. A positive shock to global GPR has an immediate positive, but gradually diminishing, effect on dry bulk shipping freight rates. This effect is driven by global rather than country-specific GPR shocks. Positiv...

This paper examines the impact of takeover law enforcement on corporate acquisitions. We use the European Takeover Directive as a natural experiment, which harmonizes takeover law across countries, while leaving its enforcement to the discretion of individual countries. We exploit this heterogeneity in enforcement quality across countries in a diff...

Using a comprehensive dataset of firms from 34 countries, we study the effect of institutional investors’ investment horizons on firm valuation around the world. We find a positive relation between institutional ownership and firm value that is driven by short-horizon institutional investors. Accounting for the interaction between investors’ invest...

Merger control exists to help safeguard effective competition. However, findings from a natural experiment suggest that regulatory merger control reduces the profitability of corporate acquisitions. Uncertainty about merger control decisions reduces the takeover threat from foreign and very large acquirers, and hence facilitates agency-motivated de...

Using a large dataset of firms from 35 countries, we study the country-level determinants of institutional investors’ investment horizons around the world. We document that an equity investor-friendly institutional environment is more important for long-term investors, while short-term investors seem to be less concerned about the quality of the fi...

We analyze the performance of a comprehensive set of equity premium forecasting strategies. All strategies were found to outperform the mean in previous academic publications. However, using a multiple testing framework to account for data snooping, our findings support Welch and Goyal (2008) in that almost all equity premium forecasts fail to beat...

Factor‐based allocation embraces the idea of factors, as opposed to asset classes, as the ultimate building blocks of an investment portfolio. We examine whether there is a superior way of combining factors in a portfolio and provide a comparison of factor‐based allocation strategies within a multiple testing framework. Factor‐based allocation is p...

New evidence from acquisition decisions suggests that antitakeover provisions (ATPs) may increase firm value when internal corporate governance is sufficiently strong. We document that, in Germany, firms with stronger ATPs, and particularly supermajority provisions, are better acquirers. Managers of high-ATP firms create value in acquisitions by ma...

This paper examines the cross-sectional properties of stock return forecasts based on Fama–MacBeth regressions using all firms contained in the STOXX Europe 600 index during the September 1999–December 2018 period. Our estimation approach is strictly out of sample, mimicking an investor who exploits both historical and real-time information on mult...

Aiming to optimally harvest global equity factor premiums, we investigated the benefits of parametric portfolio policies for timing factors conditioned on time-series predictors and tilting factors based on cross-sectional factor characteristics. We discovered that equity factors are predictably related to fundamental and technical time-series indi...

This paper examines the impact of takeover law enforcement on corporate acquisitions. We use the European Takeover Directive as a natural experiment, which harmonizes takeover law across countries, while leaving its enforcement to the discretion of individual countries. Following the recommendation in Karpoff and Whittry (2018), we adopt an inducti...

We examine whether catastrophe (cat) bonds can serve as a hedge or a safe haven for global stock, bond, real estate, commodity, private equity, and infrastructure markets. Our results indicate that cat bonds are a poor hedge, but they act as an effective diversifier against other asset classes. Furthermore, cat bonds serve as a strong safe haven ag...

We examine to what extent the market for initial coin offerings (ICOs) is driven by investor sentiment. Our results based on a comprehensive set of sentiment and coin price data suggest that the ICO market is driven by crypto-related sentiment, but is almost unrelated to general capital market sentiment. Among the crypto-related sentiment, social m...

We measure the sensitivity of investment to changes in investment opportunities in the shipping industry, and test whether this relation is moderated by ownership concentration. For a sample of 126 globally listed shipping firms, we find that investment in commercial shipping follows freight rates, a measure of the potential income stream from owni...

We examine differences in the allocation of cash flow between Western European private and public firms. Public firms tend to have a higher investment‐cash flow sensitivity than comparable private firms. This difference is not attributable to more severe financing constraints of public firms. Instead, because differences in investment‐cash flow sen...

The literature on gold is dominated by empirical studies on its diversification, hedging, and safe haven properties. In contrast, the question “When to invest in gold?” is generally not analyzed in much detail. We test more than 4000 seasonal, technical, and fundamental timing strategies for gold and find evidence for some market timing ability and...

We examine the effect of economic policy uncertainty on the relation between investment and the cost of capital. Using the news-based index developed by Baker et al. (2016) for twenty-one countries, we find that the strength of the negative relation between investment and the cost of capital decreases during times of high economic policy uncertaint...

We examine the role of a country's institutional framework for investment and financing activities. A country's financial structure, investor rights, and legal environment are important determinants of the relation between cash flow and firms’ investment and financing behavior. Firms from countries with a stronger institutional framework exhibit hi...

Firms that go public on global stock markets are not obliged to disclose earnings forecasts in their prospectuses. We use this fact to examine the shipping industry, where most firms voluntarily issue earnings forecasts during the IPO process, thus providing unique, international-level evidence. We find overall pessimistic forecasts of ship owners,...

We examine the relationship between liquidity crises and frictions in raising funds, and find that both the gap between the cash flow sensitivities of financially healthy and weak firms and the cash flow sensitivities of healthy and weak firms themselves are positively correlated with the severity of liquidity crises. Using a multi-equation model o...

We study the performance persistence of alternative UCITS funds, which are a hybrid between mutual funds and hedge funds. Persistence is gauged by alternative measures of performance and risk. Based on contingency tables, we find that performance persists for up to 2 years following ranking. However, persistence is stronger in the short run, and ra...

Using a system of equations model, we analyze how cash flow shocks influence the investment and financing decisions of shipping firms in different economic environments. Even financially healthy shipping firms felt strong negative effects on their financing activities during the recent crisis. These firms were nevertheless able to increase long-ter...

This paper analyzes the investment and financing decisions of private and public firms. We focus on their use of cash flow and find that private firms have lower investment-cash flow sensitivities and a stronger link between performance and shareholder distributions, a behavior that is consistent with private firms suffering from fewer agency confl...

Many private and institutional investors attempt to time the market and generate abnormal returns by periodically switching their portfolio allocations between the stock market and the cash market based on their return predictions. However, most academic studies emphasize that a successful market timing strategy requires a prediction accuracy that...

We compare the risk-adjusted performance of stock–bond portfolios between rebalancing and buy-and-hold across different asset allocations by reporting statistical significance levels. Our investigation is based on a 30-year dataset and incorporates the financial markets of the United States, the United Kingdom and Germany. To draw useful recommenda...

This study examines whether the “Sell in May and Go Away” (or Halloween) trading strategy still offers an opportunity to earn abnormal returns. In contrast to prior studies, we consider sample periods during which adequate investment instruments were available for an effective implementation of the Halloween strategy. In addition, we account for wh...

Based on practices and legislation in the shipping industry, we construct a corporate social responsibility (CSR) disclosure index for listed shipping companies. We use Markov Chain Monte Carlo (MCMC) techniques for Bayesian inference, and we estimate the marginal effects of firm characteristics on CSR disclosure for each firm. Our results show a p...

This study compares the performance of different rebalancing strategies under realistic market conditions by reporting statistical significance levels. Our analysis is based on historical data from the United States, the United Kingdom, and Germany and comprises three different classes of rebalancing (periodic, threshold, and range rebalancing). De...

This study examines whether the “Sell in May and Go Away” (or Halloween) trading strategy still offers an opportunity to earn abnormal returns. In contrast to prior studies, we consider sample periods during which adequate investment instruments were available for an effective implementation of the Halloween strategy. In addition, we account for wh...

Despite their high economic importance, academic research has granted KG funds only marginal attention. A main reason is the lack of reliable performance data due to non-observable market prices during the lifetime of a KG fund. In order to measure the performance of KG funds, we construct an index using a database of more than 300 German one-ship...

Recent regulatory changes in the German financial system shifted corporate control activities from universal banks to other capital market participants. Particularly hedge funds took advantage of the resulting control vacuum by acquiring stakes in weakly governed and less profitable firms. We document that, on average, hedge funds increased shareho...

The old and simple investment strategy “Sell in May and Go Away” (also referred to as the “Halloween effect”) enjoys an unbroken popularity. Recent studies suggest that the Halloween effect even strengthened rather than weakened since its first publication by Bouman and Jacobsen (2002). We implement regression models as well as Hansen’s (2005) “Sup...

Many private and institutional investors attempt to time the market and generate abnormal returns by periodically switching their portfolio allocations between the stock market and the cash market based on their return predictions. However, most academic studies emphasize that a successful market timing strategy requires a prediction accuracy that...

This study presents a systematic comparison of portfolio insurance strategies. In order to test for statistical significance of the differences in downside performance risk measures between pairs of portfolio insurance strategies, we use a bootstrap-based hypothesis test. Our comparison of different strategies considers the following distinguishing...

This study examines the relationship between Corporate Social Responsibility (CSR) and corporate performance using a sample of listed shipping companies. Recognizing heterogeneous CSR behavior across shipping companies, we employ Markov Chain Monte Carlo techniques for Bayesian inference and estimate the marginal effects of profitability and financ...

We study the performance of alternative UCITS funds and account for potential survivorship biases in our sample in the best possible manner. Alternative UCITS funds offer similar raw returns but a lower volatility compared to offshore hedge funds. Single-index models show that alternative UCITS funds provide only marginal exposure to variations in...