1. |
- Jansson, Magnus, et al.
(författare)
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Non-professional versus professional investors’ trust in financial analysts’ recommendations and influences on investments
- 2024
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Ingår i: Review of Behavioral Finance. - : Emerald Group Publishing Limited. - 1940-5979 .- 1940-5987. ; 16:5, s. 860-882
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Tidskriftsartikel (refereegranskat)abstract
- Purpose: The paper aims to investigate differences in non-professional and professional stock investors’ trust in and tendency to follow financial analysts’ buy and sell recommendations. Design/methodology/approach: Online experiment conducted in Sweden in March 2022 comparing non-professional private investors (n = 80), professional investors (n = 33), and master students in finance (n = 28). Information was presented about four company stocks listed on the New York stock exchange. Two stocks were buy-recommended and two stocks sell-recommended by financial analysts. For one stock of each type, the recommendation was presented to participants. Dependent variables were predictions of the stock price after three months, ratings of confidence in the predictions and choices of holding, buying or selling the stock. Ratings were also made of the importance of presented stock-related information as well as trust in analysts’ skill and integrity. Findings: More positive return predictions were made of buy-recommended than sell-recommended stocks. Non-professionals and to some degree finance students tended to trust financial analysts more than professional investors did and they were more influenced by the presentation of the buy recommendations. All groups made too optimistic return predictions, but the professionals were less confident in their predictions, more likely to sell the stocks and lost less on their investments. Originality/value: A new finding is that non-professional stock investors are more likely than professional stock investors to trust financial analysts and follow their recommendations. It suggests that financial analysts’ recommendations influence non-professional investors to take unmotivated investment risks. Non-professionals in the stock market should hence be advised to exercise more caution in following analysts’ recommendations.
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2. |
- Andersson, Maria, 1977, et al.
(författare)
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Effects of stock investments of information about short versus long price series
- 2012
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Ingår i: Review of behavioral finance. - : Emerald. - 1940-5979. ; 4:2, s. 81-97
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Tidskriftsartikel (refereegranskat)abstract
- Purpose – The purpose of this paper is to investigate whether stock price predictions and investment decisions improve by exposure to increasing price series. Design/methodology/approach – The authors conducted three laboratory experiments in which undergraduates were asked to role-play being investors buying and selling stock shares. Their task was to predict an unknown closing price from an opening price and to choose the number of stocks to purchase to the opening price (risk aversion) or the closing price (risk taking). In Experiment 1 stock prices differed in volatility for increasing, decreasing or no price trend. Prices were in different conditions provided numerically for 15 trading days, for the last 10 trading days, or for the last five trading days. In Experiment 2 the price series were also visually displayed as scatter plots. In Experiment 3 the stock prices were presented for the preceding 15 days, only for each third day (five days) of the preceding 15 days, or as five prices, each aggregated for three consecutive days of the preceding 15 days. Only numerical price information was provided. Findings – The results of Experiments 1 and 2 showed that predictions were not markedly worse for shorter than longer price series. Possibly because longer price series increase information processing load, visual information had some influence to reduce prediction errors for the longer price series. The results of Experiment 3 showed that accuracy of predictions increased for less price volatility due to aggregation, whereas again there was no difference between five and 15 trading days. Purchase decisions resulted in better outcomes for the aggregated prices. Research limitations/implications – Investors´ performance in stock markets may not improve by increasing the length of evaluation intervals unless the quality of the information is also increased. The results need to be verified in actual stock markets. Practical implications – The results have bearings on the design of bonus systems. Originality/value – The paper shows how stock price predictions and buying and selling decisions depend on amount and quality of information about historical prices.
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3. |
- Baker, Kent, et al.
(författare)
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Stockholdings of first-time and more experienced investors
- 2018
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Ingår i: Review of Behavioral Finance. - : EMERALD GROUP PUBLISHING LTD. - 1940-5979. ; 10:2, s. 146-162
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Tidskriftsartikel (refereegranskat)abstract
- Purpose The purpose of this paper is to examine whether socio-economic factors influence portfolio composition of individual investors investing in stocks for the first time and how these factors relate to stock portfolio performance. Design/methodology/approach The study uses cross-sectional time-series analysis to examine a unique and detailed data set of Swedish stockholdings. Findings The results show that first-time investors do not hold diversified portfolios. They experience high market risk and, on average, underperform more experienced investors. Males have higher unsystematic risk in their portfolios than females and older investors have more diversified portfolios compared to younger investors. Research limitations/implications The results show that individual investors should improve their insights by incorporating risk when investing in stocks. Practical implications Given the results of this paper, the movement from defined benefit to defined contribution pension schemes in many countries raises the issue of the need to better understand and monitor the risks in stock portfolios. Originality/value This study provides insights into whether socio-economic factors influence portfolio composition, the extent to which socio-economic factors and portfolio characteristics relate to portfolio returns, and whether portfolio performance between first-time and more experienced investors differs.
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4. |
- Gärling, Tommy, 1941, et al.
(författare)
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Affect account of the disposition effect and consequences for stock prices
- 2017
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Ingår i: Review of Behavioral Finance. - 1940-5979. ; 9:2, s. 187-202
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Tidskriftsartikel (refereegranskat)abstract
- Purpose The purpose is to present an affect account that identifies emotions driving sell preferences in stock markets that result in the disposition effect (winning stocks hold too short and losing stocks too long) and to specify how stock prices are influenced. Design/methodology/approach The affect account is derived based on analyses of previous research showing the disposition effect, proposed explanations of the effect, and basic emotion research. An individual-level analysis is performed of the consequences for stock market prices. Findings The main proposal is that investors prefer to sell when price increases make the increasing balance of hope and fear equal to a faster increasingly balance of anticipated elation and disappointment, and when price decreases make the faster increasingly negative hope-fear balance equal to the increasing negative elation-disappointment balance. Steepness in slope of the negative hope-fear balance accounts for whether a loser is never sold (an extreme disposition effect), sold later than a winning stock (the usually observed disposition effect), or sold earlier than a winning stock (a reverse disposition effect). The individual-level analysis suggests that the affect-driven disposition effect would intensify or attenuate trends in stock prices depending on the demand-supply balance. Originality/value A conceptual contribution to research of emotion influences on stock trading and specifically to explanations of the disposition effect on sell decisions by less sophisticated and experienced investors.
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5. |
- Gärling, Tommy, 1941, et al.
(författare)
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Financial risk-taking related to individual risk preference, social comparison and competition
- 2021
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Ingår i: Review of Behavioral Finance. - 1940-5979. ; 13:2, s. 125-140
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Tidskriftsartikel (refereegranskat)abstract
- Purpose – The purpose of this paper is to investigate how social comparison and motivation to compete account for elevated risk-taking in fund management corroborated by asset market experiments when performance depends on rank-based incentives. Design/methodology/approach – In two laboratory experiments, university students (n1 5 240/n2 5 120) make choices between risky and certain outcomes of hypothetical sums of money. Both experiments investigate in which direction risky choices in an individual condition (individual risk preference) are shifted when participants compare their performance to another participant’s performance (social comparison), being instructed or not to outperform the other (incentive to compete). Findings – In the absence of incentives to compete, participants tend to minimize the differences between expected outcomes to themselves and to the other, but when provided with incentives to compete, they tend to maximize these differences. An independent additional increase in risk-taking is observed when participants are provided with incentives to compete. Originality/value – Original findings include that social comparison does not evoke motivation to compete unless incentives are offered and that increases in risk-taking depend both on what the other chooses and the incentives.
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6. |
- Gärling, Tommy, 1941, et al.
(författare)
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Review of behavioral explanations of how rank-based incentives influence risk taking by investment managers in mutual fund companies
- 2020
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Ingår i: Review of Behavioral Finance. - 1940-5979. ; 12:2
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Tidskriftsartikel (refereegranskat)abstract
- Purpose: The purpose of this paper is to review behavioral explanations of the empirical observation that investment managers in mutual fund companies increase their risk taking when offered incentives based on how their performance is ranked compared to peers. Design/methodology/approach: A conceptual model is proposed of how research on social comparison, competition and financial risk taking may explain increased investor risk taking induced by rank-based incentives. Research findings in each of the strands of research are reviewed. Findings: A proposed main explanation is that an above-average bias in comparing oneself with competitors results in overconfidence that increases risk taking. A complementary proposed explanation is that an anticipated loss when lagging behind increases risk taking, and another proposed complementary explanation the belief that risk taking is a winning strategy. Originality/value: The results provide a broad framework for directions of research on social comparison processes in the mutual fund industry addressing the difficulties in implementing performance evaluations. © 2019, Emerald Publishing Limited.
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7. |
- Hagen, Johannes, 1986-, et al.
(författare)
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Trading behavior of Swedish retirement investors during the COVID-19 pandemic
- 2023
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Ingår i: Review of Behavioral Finance. - : Emerald Group Publishing Limited. - 1940-5979. ; 15:5, s. 694-708
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Tidskriftsartikel (refereegranskat)abstract
- Purpose: How did investors in the Swedish Premium Pension System (PPS) react to the stock market shock ignited by the COVID-19 pandemic?Design/methodology/approach: The authors use fund-level data from the Swedish Pensions Agency on investment choices in the PPS. For each fund, the authors use monthly information on the number of investors and holdings' market value up to November 2020. The authors also use information on the total number of portfolio changes per day. For analyzing whether PPS investors reacted to the pandemic with claiming their pension, the authors use monthly data on the number of investors of a certain age group who initiate their public pension payment.Findings: Trades more than doubled, and shifted capital from equity funds to low risk interest funds. In economic terms, however, trading stayed at low levels–less than two percent of investors traded in March 2020 and there was no effect on pension withdrawals. The increased trading during the market tumult was disproportionately concentrated among investors in the top of the pension capital distribution.Research limitations/implications: With fund-level data, the authors cannot investigate what in particular made retirement investors stay calm in the midst of a severe market decline. Either, those investors have a long-term investment horizon as they save for their pension or particular features of the system's choice architecture induce inertia and discourage from trading. The sub-group analyses are more consistent with the explanation that PPS-induced inertia is responsible for the relatively small increase in trading activity, but future research could exploit individual level data to explore this in more detail.Practical implications: The often-criticized PPS choice architecture provided positive side effects in times of a severe market shock by shielding retail investors from committing trading mistakes when trying to outsmart the market.Originality/value: The study complements previous evidence on the effects of COVID-19 on investor activity. The small response of PPS investors to COVID-19 is in line with earlier US findings on 401(k) accounts during the 2007 financial crisis (Tang et al., 2012) and industry reports about the COVID-19 period (see, e.g. Mitchell, 2020). The authors find no effects at all on public pension withdrawals in Sweden, while evidence from US 401(k) plans indicates a small share of workers taking COVID-related early withdrawals.
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8. |
- Hellström, Jörgen, et al.
(författare)
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Evaluating measures of individual investors' expectations of risk and return
- 2017
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Ingår i: Review of Behavioral Finance. - 1940-5979. ; 9:3, s. 206-226
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Tidskriftsartikel (refereegranskat)abstract
- PurposeThe purpose of this paper is to measure individual investors’ expectations of risk and return and to evaluate different expectation measures.Design/methodology/approachThe authors measure individual investors’ expectations of risk and return regarding an index fund and two stocks using survey data on a random sample of individual investors in Sweden. The survey contains three different return and four different risk expectation measures. To evaluate the different expectation measures, three different evaluation perspectives are considered.FindingsThe risk expectations obtained from the different measures are positively correlated across respondents, but their average magnitudes differ considerably across measures. The return expectations are also positively correlated, and their magnitudes also differ, but to a lesser extent. Consequently, the same individual can express risk expectations that either underestimate or overestimate the forward risk, depending on the measure that is used. The variations in the expectations mainly relate to differences in the responses to the questions underlying the different measures, rather than to the methods used to obtain the expectations. The results from the evaluation of the measures indicate that the expectation measure proposed by Dominitz and Manski (2011) is the only measure for which it is possible to distinguish between individuals’ expectations, using all three of the evaluation perspectives.Originality/valueThis is, to the best of the authors’ knowledge, the first paper that evaluates different survey measures of individual investors’ expectations of risk and return.
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9. |
- Stålnacke, Oscar
(författare)
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Come together : trust, sociability and individual investors' stock-portfolio returns
- 2021
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Ingår i: Review of Behavioral Finance. - : Emerald Group Publishing Limited. - 1940-5979. ; 13:5, s. 647-662
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Tidskriftsartikel (refereegranskat)abstract
- Purpose – Previous studies have found that trusting and sociable individuals are more likely to participate in the stock market and hold risky assets. The purpose of this paper is to explore if trust and sociability also are related to individual investors’ stock-portfolio returns.Design/methodology/approach – The authors study the questions in the paper by linking survey measures of trust and sociability to investors’ actual stock portfolios.Findings – The authors find that trusting investors acquire higher raw and risk-adjusted stock-portfolio returns, but that the returns do not differ depending on how sociable investors are. These results suggest that trust is important for investors’ stock-portfolio decisions, and that trusting investors tend to perform better in the stock market than less-trusting investors.Originality/value – This is, to the best of the authors’ knowledge, the first paper that relates survey measures of trust and sociability to investors’ actual stock-portfolio holdings. This is important to increase the understanding for how trust and sociability are related to the financial decisions individuals makes.
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10. |
- Stålnacke, Oscar
(författare)
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Individual investors’ sophistication and expectations of risk and return
- 2019
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Ingår i: Review of Behavioral Finance. - : Emerald Group Publishing Limited. - 1940-5979. ; 11:1, s. 2-22
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Tidskriftsartikel (refereegranskat)abstract
- Purpose – The purpose of this paper is to investigate the relationship between individual investors’ level of sophistication and their expectations of risk and return in the stock market.Design/methodology/approach – The author combines survey and registry data on individual investors in Sweden to obtain 11 sophistication proxies that previous research has related to individuals’ financial decisions. These proxies are related to a survey measure regarding individual investors’ expectations of risk and return in an index fund using linear regressions.Findings – The findings in this paper indicate that sophisticated investors have lower risk and higher return expectations that are closer to objective measures than those of less-sophisticated investors.Originality/value – These results are important, since they enhance the understanding of the underlying mechanisms through which sophistication can influence financial decisions.
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