Online investing is often facilitated by digital platforms, where the information of peer top performers can be widely accessible and distributed. However, the influence of such information on retail ...investors' psychology, their trading behaviour and potential risks they may be prone to is poorly understood. We investigate the impact of upward social comparison on risk-taking, trading activity and investor satisfaction using a tailored experiment with 807 experienced retail investors trading on a dynamically evolving simulated stock market, designed to systematically measure various facets of trading activity. We find that investors presented with an upward social comparison take more risk and trade more actively, and they report significantly lower satisfaction with their own performance. Our findings demonstrate the pitfalls of modern investment platforms with peer information and social trading. The broad implications of this study also provide guidelines for improving retail investor satisfaction and protection.
Investors perceive stocks of companies with fluent names as more profitable. This perception may result from two different channels: a direct, non-deliberate affect toward fluent names or a ...deliberate interpretation of fluent names as a signal for company quality. We use preregistered experiments to disentangle these channels and test their limitations. Our results indicate the existence of a significant non-deliberate fluency effect, while the deliberate fluency effect can be activated and deactivated in boundary cases. Both effects are consistent across different groups of participants. However, whereas the fluency effect is strong in isolation, it has limitations when investors are confronted with additional information about the stock.
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DOBA, IZUM, KILJ, NUK, PILJ, PNG, SAZU, SIK, UILJ, UKNU, UL, UM, UPUK
In a series of experiments, we provide evidence that people pay special attention to the probability of losing. We first analyze this behavior in the typically used one-shot choice tasks. We then ...extend our analysis to repeated decisions in choice tasks, as well as allocation and investment tasks. Additionally, we test both decision making under risk and under gradually removed uncertainty, as with decisions from experience. Our findings of explicit attention to loss probabilities contradict the predictions of normative and descriptive decision theories, such as Expected Utility Theory and (Cumulative) Prospect Theory. We suggest a value function with a jump rather than a kink at the reference point, which separates gains and losses.
We demonstrate that investor satisfaction and investment behavior are influenced substantially by the price path by which the final investor return is achieved. In a series of experiments, we analyze ...various different price paths. Investors are most satisfied if their assets first fall in value and then recover, and they are least satisfied with the opposite pattern, independent of whether the final return is positive or negative. Price paths systematically influence risk preferences, return beliefs, and ultimately trading decisions. Our results enable a much more holistic perspective on a wide range of topics in finance, such as the disposition effect, risk-taking behavior after previous gains and losses, and behavioral asset pricing.
We examine the influence of financial asset historical price path characteristics on investors’ risk perception, return beliefs and investment propensity. To that end, we run a series of survey ...experiments in which we present various price patterns to individuals with vested interest in financial matters. Our findings reveal that price paths with identical daily and monthly returns (and consequently identical return standard deviation) can lead to substantially different risk perception by investors, indicating that historical volatility is insufficient to explain risk perception. Salient features such as highs, lows and crashes are the most influential drivers of perceived risk in price paths. Return forecasts are primarily driven by past overall returns and the most recent price developments. Perceived risk and return beliefs strongly predict investment propensity.
•People's perceived confidence is unaffected by the requested confidence level.•The IP overconfidence measure neglects heterogeneity in perceived confidence.•The consistency of the IP and frequency ...overconfidence measures is limited.•The two overconfidence measures are related to different characteristics.•Our findings might explain the missing link of many experimental studies.
The most common test for overconfidence in the form of miscalibration—the interval production task (IP)—is based on the assumption that people internalize requested confidence levels. We demonstrate experimentally that decision makers’ perceived confidence is, however, unaffected by variations in the requested confidence level. In addition, we find large heterogeneity in perceived confidence that the traditional IP measure fails to account for. We show that the alternative measure based on decision makers’ perceived confidence by contrast yields coherent, moderate overconfidence levels. Our evidence suggests that the consistency of the two measures is limited and that they are related to different individual characteristics.
Risk is an integral part of many economic decisions and is vitally important in finance. Despite extensive research on decision making under risk, little is known about how risks are actually ...perceived by financial professionals, the key players in global financial markets. In a large-scale survey experiment with 2,213 finance professionals and 4,559 laypeople in nine countries representing ~50% of the world’s population and more than 60% of the world’s gross domestic product, we expose participants to return distributions with equal expected return, and we systematically vary the distributions’ next three higher moments. Of these, skewness is the only moment that systematically affects financial professionals’ perception of financial risk. Strikingly, variance does not influence risk perception, even though return volatility is the most common risk measure in finance in both academia and the industry. When testing other, compound risk measures, the probability to experience losses is the strongest predictor of what is perceived as being risky. Analyzing professionals’ propensity to invest, skewness and loss probability also have strong predictive power, while volatility and kurtosis have some additional effect. Our results are very similar for laypeople, and they are robust across and within countries with different cultural backgrounds, as well as for different job fields of professionals.
This paper was accepted by Yuval Rottenstreich, decision analysis.
We explore how individual risk perception influences prices and trading behavior in a market setting. Specifically, our study lets experimental participants trade assets characterized by varying ...shapes of return distributions. While common mean-variance models predict identical prices for most of our assets, we find trading prices to differ significantly. Assets that are perceived as being less risky on average (despite having identical volatility) trade at significantly higher prices. Individually, traders who perceive a certain asset to be less risky are also net buyers on average. With regard to different risk measures, our results show that the probability of a loss is the strongest predictor of transaction prices and risk perception. All these results hold also for experienced traders and when traders can trade two assets at the same time.
Do Investors Care about Impact? Heeb, Florian; Kölbel, Julian F; Paetzold, Falko ...
Review of financial studies/The Review of financial studies,
05/2023, Letnik:
36, Številka:
5
Journal Article
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Abstract
We assess how investors’ willingness-to-pay (WTP) for sustainable investments responds to the social impact of those investments, using a framed field experiment. While investors have a ...substantial WTP for sustainable investments, they do not pay significantly more for more impact. This also holds for dedicated impact investors. When investors compare several sustainable investments, their WTP responds to relative, but not to absolute, levels of impact. Regardless of investments’ impact, investors experience positive emotions when choosing sustainable investments. Our findings suggest that the WTP for sustainable investments is primarily driven by an emotional, rather than a calculative, valuation of impact.
Arbitrage in the market for cryptocurrencies Crépellière, Tommy; Pelster, Matthias; Zeisberger, Stefan
Journal of financial markets,
June 2023, 2023-06-00, Letnik:
64
Journal Article
Recenzirano
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Arbitrage opportunities in markets for cryptocurrencies are well-documented. In this paper, we confirm that they exist; however, their magnitude decreased greatly from April 2018 onward. Analyzing ...various trading strategies, we show that it is barely possible to exploit existing price differences since then. We discuss and test several mechanisms that may be responsible for the increased market efficiency and find that informed trading is correlated with a reduction in arbitrage opportunities.
•Arbitrage opportunities in cryptocurrency markets existed.•Their magnitude decreased greatly from April 2018 onward.•It is hardly possible to exploit existing price differences since then.•This is because of informed trading by retail and institutional investors.•Other important factors are legal restrictions and trading fees.
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