Journal ArticleDOI
Hedging, familiarity and portfolio choice ∗ .
Massimo Massa,Andrei Simonov +1 more
TLDR
In this paper, the authors exploit the restrictions of intertemporal portfolio choice in the presence of non-nancial income risk to design and implement tests of hedging that use the information contained in the actual portfolio of the investor.Abstract:
We exploit the restrictions of intertemporal portfolio choice in the presence of nonÞnancial income risk to design and implement tests of hedging that use the information contained in the actual portfolio of the investor. We use a unique dataset of Swedish investors with information broken down at the investor level and into various components of wealth, investor income, tax positions and investor demographic characteristics. Portfolio holdings are identiÞed at the stock level. We show that investors do not engage in hedging, but invest in stocks closely related to their non-Þnancial income. We explain this with familiarity, that is the tendency to concentrate holdings in stocks with which the investor is familiar in terms of geographical or professional proximity or that he has held for a long period. We show that familiarity is not a behavioral bias, but is information-driven. Familiarity-based investment allows investors to earn higher returns than they would have otherwise earned if they had hedged.read more
Citations
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Journal ArticleDOI
Down or Out: Assessing the Welfare Costs of Household Investment Mistakes
TL;DR: In this article, the authors investigated the efficiency of household investment decisions in a unique dataset containing the disaggregated wealth and income of the entire population of Sweden and found that households with greater financial sophistication tend to invest more efficiently but also more aggressively, so the welfare cost of portfolio inefficiency tends to be greater for these households.
Journal ArticleDOI
The Causal Impact of Media in Financial Markets
TL;DR: In this article, the causal impact of media reporting from the impact of the events being reported is disentangled by comparing the behaviors of investors with access to different media coverage of the same information event.
Journal ArticleDOI
Neighbors Matter: Causal Community Effects and Stock Market Participation
TL;DR: This article established a causal relation between an individual's decision of whether to own stocks and average stock market participation decision of the individual's community, and showed that the results are stronger in more sociable communities.
Journal ArticleDOI
Information Immobility and the Home Bias Puzzle
TL;DR: In this paper, the authors model investors, endowed with a small home information advantage, who choose what information to learn before they invest, and find that even when home investors can learn what foreigners know, they choose not to: Investors profit more from knowing information others do not know.
Book ChapterDOI
The Behavior of Individual Investors
Brad M. Barber,Terrance Odean +1 more
TL;DR: In this paper, the authors provide an overview of research on the stock trading behavior of individual investors and find that individual investors underperform standard benchmarks (e.g., a low-cost index fund), sell winning investments while holding losing investments (the “disposition effect”), are heavily influenced by limited attention and past return performance in their purchase decisions, engage in naive reinforcement learning by repeating past behaviors that coincided with pleasure while avoiding past behaviours that generated pain, and tend to hold undiversified stock portfolios.
References
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Journal ArticleDOI
Sample Selection Bias as a Specification Error
TL;DR: In this article, the bias that results from using non-randomly selected samples to estimate behavioral relationships as an ordinary specification error or "omitted variables" bias is discussed, and the asymptotic distribution of the estimator is derived.
Book
Limited-Dependent and Qualitative Variables in Econometrics
TL;DR: In this article, the authors present a survey of the use of truncated distributions in the context of unions and wages, and some results on truncated distribution Bibliography Index and references therein.
Journal ArticleDOI
A Simple Model of Capital Market Equilibrium with Incomplete Information
TL;DR: The model financial economics encompasses finance, micro-investment theory and much of the economics of uncertainty as mentioned in this paper, and it has had a direct and significant influence on practice, as is evident from its influence on other branches of economics including public finance, industrial organization and monetary theory.
Journal ArticleDOI
Optimum consumption and portfolio rules in a continuous-time model☆
TL;DR: In this paper, the authors considered the continuous-time consumption-portfolio problem for an individual whose income is generated by capital gains on investments in assets with prices assumed to satisfy the geometric Brownian motion hypothesis, which implies that asset prices are stationary and lognormally distributed.
Journal ArticleDOI
Home Bias at Home: Local Equity Preference in Domestic Portfolios
TL;DR: The authors showed that the strong bias in favor of domestic securities is a well-documented characteristic of international investment portfolios, yet the preference for investing close to home also applies to portfolios of domestic stocks.
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