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CFR Working Paper - Early-life Family Disruption and Investment Behavior

WiSo Professor Peter Limbach publishes results in the field of "Social Finance"

Jun. Prof. Dr. Peter Limbach

Fund managers who experienced the divorce of their parents or the death of a parent in childhood tend to realise profits earlier and wait longer for losses than their colleagues who did not have to cope with early family disruption. More than their colleagues, they are subject to the so-called disposition effect and behave more contrary to the golden rule of the stock market "let profits run and limit losses". Affected fund managers are less willing to take risks and are more likely to sell their holdings after risk-increasing corporate events.

These are the key findings of a recent study by a team led by Peter Limbach, Professor of Economics and Business Administration, for the Centre for Financial Research (CfR), an institute of the WiSo Faculty. The study has been published as CfR Working Paper No. 19-01 and is currently accepted by the Journal of Banking and Finance. The study is part of the research area of social finance - a new field that revolves around the study and interpretation of behavioural finance.

By excluding explanatory factors such as socio-economic status and family background, Professor Limbach's researchers were able to show that the behaviour of fund managers corresponds to symptoms of post-traumatic stress. There is thus a long-lasting connection between a widespread social phenomenon, namely early childhood family separation, and investment behaviour. The paper thus contributes to the understanding of the role of social factors in finance.

The Centre for Financial Research (CFR) is a research institute at the University of Cologne and is affiliated to the WiSo. Since its foundation in 2004 by Professors Dr. Alexander Kempf and Dr. Drs. h. c. Axel A. Weber, the CFR's research has focused on solving practically relevant questions in the field of financial markets.

The research activities find expression in the CFR Working Paper series. With more than 200 scientific papers, this is often found in leading international journals (including the American Economic Review, Journal of Finance, Review of Financial Studies, Journal of Financial Economics).

You can find the complete paper here: