Investor Biases References

and () - International exposure should benefit as it diversifies a portfolio but people tend to overweight their home markets.

In the U.S., % of investments are in domestic market --> appears to be driven by choice not constraint.

() - Found that investors buy stocks due to local presence - "familiarity breeds investment" - Within North America, shareholders of Bell (RBOC) live predominantly in areas where Bell operates

() - Employees typically only see a small part of the company but extrapolate to assume whole firm is like that - stock options held by emoloyees - DC pension funds show employees help % stocks in own company

and () - May explain home bias due to competence hypotheses, people rather invest where they feel knowledgeable than uninformed and forego diversification advantage

() - People assume good companies are good investments, although positive qualities are usually already priced in

() - Anecdotes such as Cuba fund which traded at huge premium after Obama said they would ease restrictions in Cuba even though the fund had no exposure to Cuba, same with Long Island changing their name to Long Blockchain.

et al () - Investing in winners and not investing in losers as a result of representative bias, they expect it will continue

et al () - People often attribute success to own skills and ignore situational factors.

and () - Investors recollect past performance better than it actually was - prevents people from learning from mistakes, Brain Filters Memories =

et al () - In Scandinavia, found support that selective attention to information meant people check funds more frequently when news is positive but put heads in sand when there is a bear market (Ostrich Effect)

et al () Found no such evidence, instead investors became hypervigilant to any news, called it Meerkat Effect.

and () - Momentum Trading - in first 3-12 months there is serial correlation but by 3 years significant reversals occur and losers tend to outperform by %

(ND) - Momentum Trading - Individualistic countries have more traders seeking quick gains which leads to more momentum

() - People fail to adequately assess their level of competence and overestimates capabilities (see lemon juice bank robber)

() Found from UBS that 74% of fund managers feel they are above average

and () - Leads to overtradingm even though those trading most frequently only made 11.4% compared to the markets 17.9%

et al () - Overconfident traders traded the most and performed the worst

and () - Closing a position at a loss induces regret, closing at a gain induces price, quest for pride and avoidance of regret leads to regret aversion

() - This can lead to forms of herd behaviour (easier to be wrong with everyone else).

Disposition effect:

and () - (1) Investors tend to sell winners too early and hold on to losers for too long
(2) Investors can prefer winners to losers but if loss occurs in portfolio prefer losers

() - An investor can test their exposure to the disposition effect by looking at whether proportion of gains realised exceeds proportion of losses

Social Biases:
and () - In over 50% of cases, investors interest in a stock had spurred from other persons monitoring of it and since buying the stock had spoken to on average others.

() - The media tends to focus on specific stories for a long time, " "

Mental Accounting:
() - Different accounts in head for different activities - people judge financial risks in isolation

and () - Although portfolio theory says to use ER, SD and Correlation for risks, mental accounting leads investors to overlook interactions between investments and fail to diversify

and () - This can magnify other biases such as disposition effect.

Anchoring:
and () - Anchored to price they paid for stock even though it has no intrinsic relation to future value

et al () - Reference points are also used such as previous highs over last 12 months

et al () - US taxi driver, puzzle of weather = good, demand = low, hours = high

Conservatism:
and () - Could be a result of status quo bias which is emotional influence to do nothing

and () - Evidence from Post Earnings Announcement Drift: stocks tend to move in direction of unexpected earnings for several months

() There is also evidence for overreactions, thus renders these biases impractical for application

() - Defends the biases, saying they coexist, overreactino typically to bad news, underreaction to good news

() - Quasi-magical thinking - successive wins make people feel in control of markets (related to overconfidence) = illusion of control

and () - If investors focus on long term returns of stocks they would recognise how little risks there are compared to bonds and equity premium would be lower

and () - Investors who are prone to the biases and odn't acknowledge them are more likely to be prone to unjustified trading and may blame themselves or others for the outcomes

() - Cultures play an effect, propensity for risk regret and maximization --> people in collectivist cultures can afford to take on more risk as have downside protection from in groups

() - moods impact decision making

et al () - Risk propensities of men greater than women, younger greater than older, ill-educated take greater risks, can be inhereted in nature

() - Endowment effect- linked to loss aversion, people willing to sell things higher than others are willing to pay
(1990) - Price at which willing to accept offer far greater than price at which willing to pay