Do investors show an attentional bias toward past performance? An eye-tracking experiment on visual attention to mutual fund disclosures in simplified fund prospectuses

Abstract

His research focus on media psychology and media effects, persuasion, emotions, and empirical methods in the field of political communication, mobile communication, online communication and financial communication.ABSTRACT This study examines the cognitive processes underlying investors' extrapolations of past fund performance and whether investors' attention patterns may explain their return-chasing behaviors. We measured the attention that investors paid to mutual fund disclosures in a simplified fund prospectus using unobtrusive infrared eye tracking. Results suggest that prior fund performance, which is normatively irrelevant information and not useful in predicting future performance, received considerable attention from investors. More interestingly, the impact of prior fund performance on investors' purchasing intentions was fully mediated through expected returns and attention paid to past performance information. The results indicate that investors apparently believe in performance persistence or in a 'hot hand' effect, and that mutual fund purchases are driven by salient information such as superior performance. Moreover, we tested the disclaimer mandated by regulatory bodies, which warns that past performance does not guarantee future results. We found that the disclaimer was ineffective in reducing investors' extrapolation biases, despite the fact that the disclaimer was attended to and properly encoded by investors.

Attention Allocation to Financial Information: The Role of Color and Impulsivity Personality Trait

“…The greater attention dedicated to the minor AOI represented by the last years of the Past performance is in line with a financial perspective which considers them important as they refer to a crucial time period: in fact, the product’s trend across the most recent years usually affect investors’ decision making through inducing a recency (or end-anchoring) bias. Our results corroborate previous findings in neurofinance which demonstrate an attentional bias toward the last portion of a graph which displays financial assets past performances (Hüsser and Wirth, 2014; Duclos, 2015).…”

“…Visual attention is a scarce resource, cognitive effortful and selective: a continuous automatic competition occurs among visual stimuli, to speed up the representation of the observed object (or text, picture) in the visual cortex. Since previous research on visual attention demonstrated that pictorial information grabs greater attention than text (Rayner et al, 2001), some researchers, like Hüsser and Wirth (2014), explored the effects of converting the narrative description of investment philosophy into a graphic representation. They quantified the attention dedicated to the investment philosophy comparing it to the time taken by the same subjects to explore the graphical representation of the fund past performance, observing that the former attracted less attention than the latter.…”

“…According to Frydman and Camerer (2016), only a few studies measure financial attention directly, i.e., trough eye-tracking, while most of them use proxies as Google searches of individual stock ticker symbols. As a matter of fact, very few studies have applied the eye tracking technology to shed light on the neural mechanisms that underlie investor’s behavior (Shavit et al, 2010; Hüsser and Wirth, 2014; Duclos, 2015; Rubaltelli et al, 2016), and none of them has focused on attentional mechanisms during financial information processing considering also the influence of the color of stimuli and of the impulsivity personality trait.…”

Do investors exhibit behavioral biases in investment decision making? A systematic review

“…The effect of different biases on the different determinants of investor behavior such as risk perception (Wang et al, 2006;Riaz and Hunjra, 2015), risk propensity (Pan and Statman, 2012), portfolio analysis (Hoffmann et al, 2010) risk tolerance (Sulaiman, 2012; Pak and Mahmood, 2015), financial rationality (Soufian et al, 2014), financial literacy Omark, 2015, financial planning (Guillemette et al, 2015;Hayat and Anwar, 2016) and financial personality (Kubilay and Bayrakdaroglu, 2016). The following factors have been identified, which implies a significant impact on the investors' decisions such as investor's experience (Feng and Seaholes, 2015;Papadovasilaki, 2015), past investment results (Ray, 2009;Olsen, 1998), occupational effects (Dhar and Zhu, 2006;Yee et al, 2010), timing of security issue (Deng et al, 2012;Maung and Chowdhury, 2014), investment intentions (Njuguna et al, 2016;Trang and Tho, 2017), information processing (Graham et al, 2002;Hüsser and Wirth, 2014), emotional feelings (Hassan and Bashir, 2014;Charles and Kasilingam, 2015).…”

Designing Graphs for Decision-Makers

“…Most of the data are presented in tabular format; the sole exception is that a bar chart of annual returns over the previous 7 years is mandated-and the specifications for those charts are poorly designed and may not depict the most helpful information (Figure 1). When researchers assessed how people used this chart, they found that viewers focused on unhelpful information and relied on irrelevant data, leading to poor decision-making (Hüsser & Wirth, 2014).…”