Rik Frehen appointed Professor of Finance

Rik Frehen has been affiliated with Tilburg University since 2009. His research has been published in some of the world’s leading academic journals, and he has won multiple awards for both research and teaching. 

Historical data

Frehen’s historical research is primarily focused on the risks taken by investors, both during financial bubbles and under normal conditions. Frehen identifies these risks and calculates the premium that investors are willing to pay to hedge them.

Frehen: ‘While visiting the Bank of England’s archives, I came across centuries-old ledgers containing incredibly detailed records of stock transactions. With the help of my father, I took nearly 10,000 photos of these ledgers and digitised the transaction data. The transactions span a decade and include events such as the infamous South Sea Bubble (1720). This data set serves as the basis for a number of my research projects. 

In one of these projects, I examine the impact of insider trading. The historical sources reveal how directors acted on inside information in an era when that was still permitted. You can clearly see how they tried to hide their transactions (for example, by having friends buy or sell shares on their behalf). The sources also allow me to better gauge how damaging insider trading is to investors who lack inside information. This is difficult to measure in today’s markets, since modern trading is largely done anonymously and since insider trading is now illegal.'

Psychology

Frehen’s research also looks at teamwork between investors. ‘In the old ledgers, I could see that some investors had joint investment accounts. I’m currently examining whether investors’ trading behaviour changes after opening a joint account. For example, are they more reluctant to sell losing positions after teaming up with other investors who exhibit similar behaviour? This line of research overlaps a great deal with the field of psychology. It can provide us with important insights into the effects of team formation on investor behaviour.’

Frehen’s journey into historical research began with two professors in the United States, William Goetzmann and Geert Rouwenhorst, who were looking for historical sources for a book they were writing. Frehen: ‘It’s something that’s always fascinated me, and I hope to remain active in this field alongside my non-historical work. Historical sources can sometimes help you answer questions or examine things from different perspectives in ways that are impossible with modern data.’

The price of risk

In addition to his work with historical data, Frehen also investigates contemporary markets. This aspect of his research focuses primarily on the price that investors are willing to pay to hedge risks. For instance, he is interested in the impact of the publication of macroeconomic news. ‘We often see significant changes in stock and bond prices on days when macroeconomic announcements are made. This is due to changes in investor expectations based on the new information that was released.’ Frehen studies the types of news that investors find important and the price they are willing to pay to hedge these macroeconomic risks. 

Sharing knowledge

In his new position as Professor of Finance, Frehen seeks to further hone his research and teaching skills. ‘I feel it’s important to share my knowledge and skills with my PhD students and junior colleagues. I’m incredibly grateful to have learned so much from others over the course of my career, and I feel it is my duty and my obligation to pass on the enthusiasm, knowledge, passion, and skills that I’ve gained.’