Sell winners and buy losers? The impact of familiarity on individual investors' decision-making. Experimental results

Purpose: This article analyzes the influence of familiarity bias on respondents' decision-making process, using results from online experiments. Design/methodology/approach: A total of 255 research participants from post-Soviet countries completed 510 online tests that were presented in the for...

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Bibliographic Details
Published in:International journal of financial studies 2021-09, Vol.9 (3), p.1-8
Main Authors: Zhdanov, Vladislav, Simonov, Artem
Format: Article
Language:English
Subjects:
Asset acquisitions
Behavioral economics
behavioral finance
Bias
Datasets
Decision making
Experiments
familiarity bias
heterogeneous trading
Investments
Investor behavior
positive feedback trading
reluctance to realize losses
riskier trading
Russian language
Social networks
Websites
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Summary:Purpose: This article analyzes the influence of familiarity bias on respondents' decision-making process, using results from online experiments. Design/methodology/approach: A total of 255 research participants from post-Soviet countries completed 510 online tests that were presented in the form of investment games. In the games, the respondents were allowed to sell, buy, or hold two types of asset portfolios: familiar and unfamiliar assets. Findings: Holders of portfolios with familiar assets were 1.34 times more likely to be persistent in selling winners and holding losers and 1.10 times more likely to be persistent in buying fallen assets than holders of unfamiliar portfolios. Moreover, respondents who managed familiar assets tended to generate terminal result distributions with a kurtosis that was 27.8% higher than the distributions of those managing unfamiliar assets. Originality: Several academic studies have examined familiarity bias, the disposition effect, the positive feedback trading of individual investors, and risk-seeking trading; however, they investigated these topics separately. In the current study, we therefore created an online experiment to identify new aspects of investor behavior.
ISSN:2227-7072
2227-7072
DOI:10.3390/ijfs9030047