Myopic loss aversion and stock investments

an empirical study of private investors

Research output: Contribution to journalArticleResearchpeer-review

11 Citations (Scopus)

Abstract

Myopic loss aversion was suggested by Benartzi and Thaler (1995) as an explanation for the equity premium puzzle. Its main prediction is that loss averse investors, who evaluate their investment performance too frequently and therefore often observe small losses on their stock portfolios, would invest too little in equity. We investigate the link between myopic loss aversion and actual investment decisions of individual investors, using survey data. Our results are consistent with the predictions of Benartzi and Thaler. Higher myopic loss aversion is associated with lower stock investment as a share of total assets. Investors tend to evaluate their stock portfolio performance too often, which contributes to the prevalence of myopic loss aversion. The effect of myopia is most apparent when investors both evaluate their portfolios frequently and trade stocks regularly.
Original languageEnglish
Pages (from-to)235–246
Number of pages12
JournalJournal of Banking and Finance
Volume70
DOIs
Publication statusPublished - 2016

Keywords

  • portfolio allocation
  • myopic loss aversion
  • individual investors

Cite this

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title = "Myopic loss aversion and stock investments: an empirical study of private investors",
abstract = "Myopic loss aversion was suggested by Benartzi and Thaler (1995) as an explanation for the equity premium puzzle. Its main prediction is that loss averse investors, who evaluate their investment performance too frequently and therefore often observe small losses on their stock portfolios, would invest too little in equity. We investigate the link between myopic loss aversion and actual investment decisions of individual investors, using survey data. Our results are consistent with the predictions of Benartzi and Thaler. Higher myopic loss aversion is associated with lower stock investment as a share of total assets. Investors tend to evaluate their stock portfolio performance too often, which contributes to the prevalence of myopic loss aversion. The effect of myopia is most apparent when investors both evaluate their portfolios frequently and trade stocks regularly.",
keywords = "portfolio allocation, myopic loss aversion, individual investors",
author = "Boram Lee and Veld-Merkoulova, {Joulia Wiktorowna}",
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Myopic loss aversion and stock investments : an empirical study of private investors. / Lee, Boram; Veld-Merkoulova, Joulia Wiktorowna.

In: Journal of Banking and Finance, Vol. 70, 2016, p. 235–246.

Research output: Contribution to journalArticleResearchpeer-review

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AB - Myopic loss aversion was suggested by Benartzi and Thaler (1995) as an explanation for the equity premium puzzle. Its main prediction is that loss averse investors, who evaluate their investment performance too frequently and therefore often observe small losses on their stock portfolios, would invest too little in equity. We investigate the link between myopic loss aversion and actual investment decisions of individual investors, using survey data. Our results are consistent with the predictions of Benartzi and Thaler. Higher myopic loss aversion is associated with lower stock investment as a share of total assets. Investors tend to evaluate their stock portfolio performance too often, which contributes to the prevalence of myopic loss aversion. The effect of myopia is most apparent when investors both evaluate their portfolios frequently and trade stocks regularly.

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