LE4 - Investor Behavior

• cognitive errors

  • Nicht alle Informationen analysierbar

  • Incorrect information processing

  • Use simple heuristics

  • Failure translate information into fully rational decisions

• Emotional biases

  • How individuals see information

  • Emotional biases distinct from cognitive limitations involved when analyzing and processing information

=> roots of behavioral biases schwer zu entschlüsseln

• Combination of cognitive errors and emotional biases

• Reference point thinking

  • Seperate stocks into winner and loser stocks

    • Gain realisieren

    • Loss halten

• Loss aversion

  • Risk aversion in gain

  • Risk seeking in loiss

• Winner stocks sold too early

• Loser stocks held too long

• Rational wealth maximizing investor behavior

  • Sell loser to reduce taxes

  • Hold winner

PGR (Anteil realisierte Gewinne)

• Realized Gains / (realized Gains + paper gains)

PLR (Anteil realisierter Verluste)

• Realized Loss / (realized losses + paper Loss)

• higher tax burden while lowering returns

Key result

• positive abnormal trading volume for winner stocks

• Negative abnormal trading volume for loser stocks

=> positiv zu früh verkauft

=> neagtiv zu lang gehalten

• Self justification

• Pride and regret

Harmfull?

• Tax burden steigt an

• Winners outperfom losers

• Example of sunk cost fallacy

Remedies against

• Become aware of biases

• Stop-loss orders in order to sell loser stocks automatically

• gleicher Text nur negativ formuliert

• 200 lives saved

• 800 died

• positive frame: risk avers

• Negative frame: risk seeking

=> extremness aversion, es wird lieber die Mitte gewähltt

=> individuals have non stable preferences

• return group are trend chaser

• price group expect mean reversion

• Return: negativ wird fortgeführt

• Price: Trendwende

US: 93% halten sich für bessere Autofahrer als der mean

S: 69% halten sich für bessere Autofahrer als der mean

JLU Female: 60%

JLU Male: 77%

• Turnover rate increase from 70 to 120%

• Handelsvolumen deutlich angestiegen

• Performance gesunken

• Better than avg. effect (svenson 1981)

• Miscalibration (russo/shoemaker, 1989)

  • Too narrow confidence intervals

• Ilusion of control (barber/odean 2002)

  • People fell they can influence outcome

• Excessice optimism

  • Related to illusion of control

  • People assign wskt to outcomes

  • “Of course is our marriage last forever“

Rational

• Active and less traders have same expected utility

• Active traders must have higher gross returns to offset trading costs

• Different in net returns predicted

Behavioral

• Investors suffer from overconfidence trade excessively

• Excessicve trading reduces expected utility

• Net return of trader with high turnover should be less then turnover of less active trader

• Viele Turnover -> less return

Key results

• Net return sinkt bei viel Turnover

• in 2001 same data: men tend to be more overcondifent than women

• Overconfident tend to trend excessively

• Key hypothesis: men trade more than women

• Männer mehr turnover aber frauen höhere Renditen

• Somit Hypothese bestätigt

• rational predictions

  • Returns of expertise stocks highly correlated with return on human capital (poor hedging properties)

  • Investors should invest in expertise investments only if they posses value relevant information

  • => expertise inverstments should have abnormally high returns

• Behavioral predictions

  • Overconfidence affects experts and amateurs -> overconfidence in their expertise

  • Preference for expertise stocks based on ilusion of control, not on informational advantage

  • => expertise investments unlikely to deliver positive excess returns

• Self attribution bias

  • People learn to be overconfident

• Hindsight bias

  • Ich hab es die ganze zeit gewusst!"

• Confirmation bias

  • Ignore conflicting data

• representativness heuristic

  • People focus on similarity of description to certain stereotypes

• Economics of representativeness

  • Mental short cuts when processing information

  • assessment of probability substituted by judgment of similarity

• Issues with representativness

  • Kann dazu führen dass man Basisinformationen vernachlässigt

Key results

• value more return 1 year and 5 year

• good investment in vergangenheit heißt nicht good in Zukunft

• Leute orientieren sich zu stark an vergangener performance

Problem?

• Expensive buys in bull markets

• Costly sells in declining markets

Key result

• Employees investing after having experienced the (best) worst 10-year-period

  of own company stock performance invest (40%) 10% of discretionary

  contributions into company stock

• Agents distinguish between risk (known probabilities) )and ambiguity (unknown probabilities)

• Agents display aversion towards ambiguity

• Ambiguity aversion distinct from risk aversion

=> Investors exhibit different degrees of ambiguity about distribution of asset returns and consider familar asset with lowest level of ambiguity

• People tend to overinvest in employer stock, expertise stock, familare firms, geographic close firm

• Familarity leads to substantial portfolio underdiversification

• US 87% invested in US by 43% Marktkapitalisierung

• Ger 73% by 3% Marktkapitalisierung

Ergebnis:

• strong evidence of local bias

• higher in urbanized area

• east west heterogeneity

• positve related to domestic stock

=> Familiarity bias leads to underdiversification

DIe meisten wählen Option A -> Mental accounting

• money in one mental account is not perfect subs in another account

• makes it difficult for investors to diversification

• violates principles of asset integration

• inconsistent with modern PF theory

=> erschwert investoren Umsetzung von Diversifikation

Mental accounting -> Aktien werden einzeln betrachtet

Pro

• einfacher zu betrachten

• Planbarkeit

Con

• Investment muss im Gesamten betrachtet werden -> Disposition effect

• erschwert investoren Umesetzung von Diversifikation

• gleichzeitiges Sparen und Kredit

dummy variable um nur x zu bewerten und keinen Einfluss haben

fixed effects werden einbezogen um zu berücksichtigen dass unbeobachtbare Eigenschaften auf y auswirken.

neben ceo fixed effects könnte es auch folgende fixed effects geben

• firm fixed

  • firmenspezifische Eigenschaften wirken sich auf y aus

• industry fixed

  • Branchen spezielle Eigenschaften wirken sich auf y aus

• Orientierung an vorher gegebenen Wert

mean estimate(high anchor) - mean(low anchor)/ high anchor - low anchor

AI = 1 -> initial anchor

AI = 0 -> anchor ignored

• manipuliertes Rad

• Frage wird gestellt und Rad gedreht

• Rad bleibt bei 10 oder 64 stehen und Antwort orientiert sich an der Zahl obwohl es damit nichts zutun hat

Ergebnis1:

Group A gibt 8.1 an

Group B lässt sich beeinflussen und gibt 4.6 an.

Ergebnis 2:

Experten weniger Anfällig für Anchor, bei beiden aber Anchor effect

Ergebnis:

• Ab >0 wäre es sinnvoll für B anzunehmen

• in der 1. Runde geringe rejection rate, A bietet 0.37

• in der 2. Runde hohe rejection rate, A bietet 0.32

=> A wird rationaler und B wird irrationaler

industry:

LA rejection rate von 0, Jerusalem am höchsten mit 0.33, Allerdings LA auch mit 160$ gespielt und rest mit 10$

Indigenous:

fairer gespielt

-> Kulturelle Unterschiede beeinflussen das Spiel

• Die meisten haben B 0$ gegeben, da keine Ablehnung möglich war

• im Ultimatum game liegt modus bei 2.5

=> Angst das B ablehnt, treibt Angebot nach oben

Fairness is not the only reason for the positive offers in ultimatum game

Ergebnis:

• social households more likely to invested in stock market

• households know neighbors or attend church higher probability to participate in stock market

RCT Studie

• social households that lives with high stock market participants are even more likely to invest in stock market

Ergebnis

• 10% increase purchase is associated with a 2% increasment in households own purchase of stocks from that industry

• Effect even stronger for purchases of local companies

Finding

• belonging to the same building is associated with participation rates

• Menschen entscheiden wie die Allgemeinheit

• investment strategy that considers financial returns and social/environmental good

• key principles

  • investment with ethical principles

  • goes beyond profid: ESG Factors

• Types

  • negative screening

  • positive screening (best in class)

  • ESG integration

  • impact investing

• social preferences and social signaling explain socially responsible investment decisions

Result

• 67.9% are in favor of expanding sustainable investments

• majority of respondents choose to expand sustainable investing, even those who have negative return expactations or are uncertain about the return

• Investors gib up financial wealth to invest sustainably

• driven by positive emotions regarding making an impact rather than by a calculative valuation of impact

Result

• investor accpet that investments and values are commingled