How price path characteristics shape investment behavior
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In: Journal of Economic Behavior and Organization, Vol. 154, 01.10.2018, p. 33-59.
Research output: Journal contributions › Journal articles › Research › peer-review
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TY - JOUR
T1 - How price path characteristics shape investment behavior
AU - Nolte, Sven
AU - Schneider, Judith C.
PY - 2018/10/1
Y1 - 2018/10/1
N2 - Price paths are often the only graphical representation of financial products investors receive before making an investment decision. We argue that price paths serve as ”graphical” frames that influence the perceived attractiveness of an asset by highlighting specific asset characteristics. In a controlled lab experiment we find that price paths have an impact on investment decisions. In a regression we test a simple model relating the perception of price path shapes to several heuristics. These heuristics are: focusing on more recent outcomes, deriving implicit reference prices from focal prices, focusing on losses, and estimating risk from the amplitude of the path. We conclude that investment decisions are systematically biased due to the shape of an asset's price path.
AB - Price paths are often the only graphical representation of financial products investors receive before making an investment decision. We argue that price paths serve as ”graphical” frames that influence the perceived attractiveness of an asset by highlighting specific asset characteristics. In a controlled lab experiment we find that price paths have an impact on investment decisions. In a regression we test a simple model relating the perception of price path shapes to several heuristics. These heuristics are: focusing on more recent outcomes, deriving implicit reference prices from focal prices, focusing on losses, and estimating risk from the amplitude of the path. We conclude that investment decisions are systematically biased due to the shape of an asset's price path.
KW - Attribute framing
KW - Behavioral investment choice
KW - Experiment
KW - Loss aversion
KW - Price paths
KW - Reference point
KW - Management studies
UR - http://www.scopus.com/inward/record.url?scp=85051520910&partnerID=8YFLogxK
U2 - 10.1016/j.jebo.2018.07.018
DO - 10.1016/j.jebo.2018.07.018
M3 - Journal articles
AN - SCOPUS:85051520910
VL - 154
SP - 33
EP - 59
JO - Journal of Economic Behavior and Organization
JF - Journal of Economic Behavior and Organization
SN - 0167-2681
ER -