How Price Path Characteristics Shape Investment Behavior

Nolte, Sven; Schneider, Judith C.

doi:10.2139/ssrn.2883382

Cited by 9 publications

(30 citation statements)

References 31 publications

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“…Past performance information about financial assets is frequently presented in the form of price paths. Usually, they are the only graphical element in the available information set (Nolte & Schneider, 2018). As visual information largely attracts individuals' attention (Lurie & Mason, 2007), price paths often play a significant role in investment decisions.…”

Section: Introductionmentioning

confidence: 99%

“…The literature on investment behavior in price path settings has so far mainly focused on particular aspects rather than analyzing influence factors holistically. Grosshans and Zeisberger (2018) and Nolte and Schneider (2018) investigate the effect of characteristic price path patterns (up-down vs down-up shape) on the perceived attractiveness of an investment and they find considerable differences between these shapes with regard to investor satisfaction, risk perception and beliefs. Mussweiler and Schneller (2003) show that price paths which contain a pronounced high lead to increased future performance beliefs and investment propensities compared to paths with a low.…”

Section: Introductionmentioning

confidence: 99%

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What makes an investment risky? An analysis of price path characteristics

Borsboom

Zeisberger

2020

Journal of Economic Behavior & Organization

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We examine the influence of financial asset historical price path characteristics on investors' risk perception, return beliefs and investment propensity. To that end, we run a series of survey experiments in which we present various price patterns to individuals with vested interest in financial matters. Our findings reveal that price paths with identical daily and monthly returns (and consequently identical return standard deviation) can lead to substantially different risk perception by investors, indicating that historical volatility is insufficient to explain risk perception. Salient features such as highs, lows and crashes are the most influential drivers of perceived risk in price paths. Return forecasts are primarily driven by past overall returns and the most recent price developments. Perceived risk and return beliefs strongly predict investment propensity.

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Section: Introductionmentioning

confidence: 99%

Section: Introductionmentioning

confidence: 99%

What makes an investment risky? An analysis of price path characteristics

Borsboom

Zeisberger

2020

Journal of Economic Behavior & Organization

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“…For different price paths, they document patterns of perceived risk in line with those reported in our study. Nolte and Schneider (2016) recently also analyzed how price path affect investor behavior and use our basic idea and terminology of up-down and down-up price paths in their study. While the authors do not investigate satisfaction they conclude that characteristic price paths shape investor behavior in systematic ways, confirming our findings in the present paper.…”

Section: Discussionmentioning

confidence: 99%

All's Well that Ends Well? On the Importance of How Returns are Achieved

Grosshans

Zeisberger

2015

SSRN Journal

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We demonstrate that investor satisfaction and investment behavior are influenced substantially by the price path by which the final investor return is achieved. In a series of experiments, we analyze various different price paths. Investors are most satisfied if their assets first fall in value and then recover, and they are least satisfied with the opposite pattern, independent of whether the final return is positive or negative. Price paths systematically influence risk preferences, return beliefs, and ultimately trading decisions. Our results enable a much more holistic perspective on a wide range of topics in finance, such as the disposition effect, risk-taking behavior after previous gains and losses, and behavioral asset pricing.Keywords: investor satisfaction, reference points, risk tolerance, investor behavior, experimental finance JEL classification: D14, D81, G11 * The authors thank Charlotte Borsboom, Thorsten Hens, Jürgen Huber, Danling Jiang, Michael Kirchler, Thomas Langer, Amos Nadler, Alexandra Niessen-Ruenzi, Michaela Pagel, Hersh Shefrin, Martin Weber as well as participants of the following university research seminars and conferences for helpful comments and suggestions:

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“…Secondly, there are efforts to discover new factors that influence investment choices. For example, some recent findings indicate that risk aversion is affected by past stock market performance (Cordes et al, 2017); the difference in framing between changes in asset price levels and asset returns influences investors' expectations of future returns (Glaser et al, 2016); informationally irrelevant paths of asset price developments shape investors' behavior and satisfaction with the investment experience (Nolte and Schneider, 2016;Grosshans and Zeisberger, 2017).…”

Section: Household Finance: Assetsmentioning

confidence: 99%

Untitled

2017

Visn. Nat. Bank Ukr.

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This article presents an approach for nowcasting the current value of Ukraine's quarterly GDP. The approach uses leading indicators with a different disclosure frequency. We generalize data from a set of explanatory variables into several factors by using principal components analysis and estimate the factor-augmented VAR (FAVAR) model. Our system incorporates new data as they are published throughout a quarter to adjust GDP nowcasts. In addition, we research the influence of separate data releases on the accuracy of forecasts.

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How Price Path Characteristics Shape Investment Behavior

Cited by 9 publications

References 31 publications

What makes an investment risky? An analysis of price path characteristics

What makes an investment risky? An analysis of price path characteristics

All's Well that Ends Well? On the Importance of How Returns are Achieved

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