Christoph Merkle is Associate Professor of Finance at Kühne Logistics University. From 2012 to 2017 he was Assistant Professor of Finance and Banking at the University of Mannheim, where he also obtained his PhD. Before, he studied Economics at the University of Cologne. He was a visiting scholar at Duke University, Fuqua School of Business, and Aalto University.
Merkle’s research interests include Behavioral Finance, Household Finance, Experimental Economics, Decision Theory, and Financial Forecasting. Among other topics, he analyzes how individual investors convert their beliefs and preferences into actions in financial markets. In newer work, he explores how financial professionals process information and form expectations.
Merkle, Christoph (In press): The Curious Case of Negative Volatility, Journal of Financial Markets.
Abstract: In a panel survey of brokerage clients in the United Kingdom, participants mostly perceive their own portfolio as no more volatile than the market portfolio. Taking into account observed portfolio betas, this implies a belief in very low idiosyncratic portfolio volatility, which is even negative for a considerable fraction of the studied investor population. Possible explanations are extreme overconfidence in combination with a misunderstanding of how market and portfolio volatility are related. The identified bias contributes to underdiversification, as a belief in negative idiosyncratic volatility conceals the true benefits of diversification. In an experiment, we confirm the existence of a belief in negative volatility and rule out the underestimation of beta as an alternative explanation.
Merkle, Christoph, Philipp Schreiber and Martin Weber (2017): Framing and Retirement Age: The Gap between Willingness-to-Accept and Willingness-to-Pay, Economic Policy, 32 (92): 757-809.
Abstract: In a large online experiment, we relate the retirement timing decision to the disparity between the willingness-to-accept (WTA) and the willingness-to-pay (WTP). In the WTP treatment, participants indicate the maximum amount of monthly benefits they are willing to give up in order to retire early. In the WTA treatment, the minimum increase of monthly payments in order to delay retirement is elicited. Our results reveal that the framing of the decision problem strongly influences participants' reservation price for early retirement. The willingness-to-accept for early retirement is more than twice as high as the corresponding willingness-to-pay. Using actual values from the German social security system as market prices, we demonstrate that the presentation in a WTA frame can induce early retirement. In this frame, the implicit probability of retiring early increases by 30 percentage points.We further show that the disparity between WTA and WTP is correlated with loss aversion. Repeating the analysis with data from a representative household survey (German SAVE panel), we find similar results.
Merkle, Christoph (2017): Financial overconfidence over time: Foresight, hindsight, and insight of investors, Journal of Banking & Finance, 84 (November): 68-87.
Abstract: Financial overconfidence leads to increased trading activity, higher risk taking, and less diversification. In a panel survey of online brokerage clients in the UK, we ask for stock market and portfolio expectations and derive several overconfidence measures from the responses. Overconfidence is identified in the sample in various forms. By matching survey data with participants’ transactions and portfolio holdings, we find an influence of overplacement on trading activity, of overprecision and overestimation on diversification, and of overprecision and overplacement on risk taking. We explore the evolution of overconfidence over time and identify a role of past success and hindsight on subsequent investor overconfidence in line with learning to be overconfident.
Heuer, Justus, Christoph Merkle and Martin Weber (2017): Fooled by Randomness: Investor Perception of Fund Manager Skill, Review of Finance, 21 (2): 605-635.
Abstract: Return-chasing investors almost exclusively consider top-performing funds for their investment decisions. When drawing conclusions about the managerial skill of these top performers, they tend to neglect fund volatility and the cross-sectional information contained in the number of funds and the distribution of skill. In multiple surveys of sophisticated retail investors, we show that they do not fully understand the role of chance in experimental samples of fund populations. Respondents evaluate each fund in isolation and do not sufficiently account for fund volatility. They confuse risk taking with manager skill and are thus likely to over-allocate capital to lucky past winners.
Merkle, Christoph and Martin Weber (2011): True overconfidence: The inability of rational information processing to account for apparent overconfidence, Organizational Behavior and Human Decision Processes, 116 (2): 262-271.
Abstract: The better-than-average effect describes the tendency of people to perceive their skills and virtues as being above average. We derive a new experimental paradigm to distinguish between two possible explanations for the effect, namely rational information processing and overconfidence. Experiment participants evaluate their relative position within the population by stating their complete belief distribution. This approach sidesteps recent methodology concerns associated with previous research. We find that people hold beliefs about their abilities in different domains and tasks which are inconsistent with rational information processing. Both on an aggregated and an individual level, they show considerable overplacement. We conclude that overconfidence is not only apparent overconfidence but rather the consequence of a psychological bias.
|Since 2017||Associate Professor of Finance at Kühne Logistics University, Hamburg, Germany|
|2012-2017||Assistant Professor of Finance at University of Mannheim, Mannheim, Germany|
|2015||Visiting Researcher at Duke University, Fuqua School of Business, Durham, NC, USA|
|2013||Visiting Researcher at Aalto University, School of Business, Helsinki, Finland|
|2010-2012||Research and Teaching Assistant at University of Mannheim, Mannheim, Germany|
|2011||PhD in Finance (Dr. rer.pol.) at University of Mannheim, Mannheim, Germany|
|2007||M.A. Economics (Dipl.-Volkswirt) at University of Cologne, Cologne, Germany|