Investor home bias and sentiment about the country benefiting from the tax revenue

Möhlmann, Axel

doi:10.1016/j.joep.2013.01.008

Cited by 5 publications

(5 citation statements)

References 46 publications

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“…The expected reasons can be found to quantify the effect of these biases and to know the exact degree to which they are impacting the investor behavior. Mohlmann (2013) results suggest that investors prefer domestic equity and invest in riskier portfolios in case of a foreign tax rather than a domestic tax on foreign dividend income. The willingness to pay taxes depends on the attributes of the tax collecting country.…”

Section: Reasons Affecting Differences In Investment Patternsmentioning

confidence: 94%

“…The ignorance, peer influence, media information and broker's recommendation has a significant impact on the decision to invest. Mohlmann (2013) explains how the difference in behavior of investors with regard to the different the tax collectors is associated with home bias. The investors prefer to invest in domestic companies, as the tax collection is comparatively easier with respect to the foreign country and the investors have a trust on the tax collection of their own government.…”

Section: Literature On Behavioral Biasesmentioning

confidence: 99%

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

Zahera

Bansal

2018

QRFM

174

114

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Purpose The purpose of this paper is to study and describe several biases in investment decision-making through the review of research articles in the area of behavioral finance. It also includes some of the analytical and foundational work and how this has progressed over the years to make behavioral finance an established and specific area of study. The study includes behavioral patterns of individual investors, institutional investors and financial advisors. Design/methodology/approach The research papers are analyzed on the basis of searching the keywords related to behavioral finance on various published journals, conference proceedings, working papers and some other published books. These papers are collected over a period of year’s right from the time when the most introductory paper was published (1979) that contributed this area a basic foundation till the most recent papers (2016). These articles are segregated into biases wise, year-wise, country-wise and author wise. All research tools that have been used by authors related to primary and secondary data have also been included into our table. Findings A new era of understanding of human emotions, behavior and sentiments has been started which was earlier dominated by the study of financial markets. Moreover, this area is not only attracting the, attention of academicians but also of the various corporates, financial intermediaries and entrepreneurs thus adding to its importance. The study is more inclined toward the study of individual and institutional investors and financial advisors’ investors but the behavior of intermediaries through which some of them invest should be focused upon, narrowing down population into various variables, targeting the expanding economies to reap some unexplained theories. This study has identified 17 different types of biases and also summarized in the form of tables. Research limitations/implications The study is based on some of the most recent findings to have a quick overview of the latest work carried out in this area. So far very few extensive review papers have been published to highlight the research work in the area of behavioral finance. This study will be helpful for new researches in this field and to identify the areas where possible work can be done. Practical implications Practical implication of the research is that companies, policymakers and issuers of securities can watch out of investors’ interest before issuing securities into the market. Social implications Under the Social Implication, investors can recognize several behavioral biases, take sound investment decisions and can also minimize their risk. Originality/value The essence of this paper is the identification of 17 types of biases and the literature related to them. The study is based on both, the literature on investment decisions and the biases in investment decision-making. Such study is less prevalent in the developing country like India. This paper does not only focus on the basic principles of behavioral finance but also explain some emerging concepts and theories of behavioral finance. Thus, the paper generates interest in the readers to find the solutions to minimize the effect of biases in decision-making.

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Section: Reasons Affecting Differences In Investment Patternsmentioning

confidence: 94%

Section: Literature On Behavioral Biasesmentioning

confidence: 99%

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

Zahera

Bansal

2018

QRFM

174

114

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“…The model offers a theoretical mechanism for how investors over-(under-) value the assets. In this sense, our model of investor salience bias as to perceived risk may fit the sentiment-related empirical evidence (Palomino et al, 2009;Yu and Yuan, 2011;Stambaugh et al, 2012;Yuan, 2011, 2011;Baker et al, 2012;M€ ohlmann, 2013;Da et al, 2014;Huang et al, 2014;Lepori, 2015). Shiller (2017) discusses that narratives significantly contribute to the psychology of decision makers.…”

Section: Literature Reviewmentioning

confidence: 89%

“…, 2012; Yu and Yuan, 2011, 2011; Baker et al. , 2012; Möhlmann, 2013; Da et al. , 2014; Huang et al.…”

Section: Introductionmentioning

confidence: 99%

Investor bias, risk and price volatility

Polat

2022

JES

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PurposeThis study proposes a framework based on salience theory and shows that focusing on one type of risk (idiosyncratic or systemic) can explain overpricing of securities ex ante, and resales at low prices during crisis periods.Design/methodology/approachThe author consider an overlapping generations (OLG) model where each generation lives for two periods and there is no population growth. Agents (investors) start their lives with an endowment W > 0 and have mean-variance utility. They invest their endowment when young and consume when old. Each period, the young investors optimally choose their portfolio from different risky assets acquired from the old generation, all assumed to be in fixed supply.FindingsThe author show that investor salience bias can explain excess volatility of asset prices and the resulting fire-sales in periods of financial turmoil. A change in salience – from one component (idiosyncratic) to the other (systemic) – will generate excess volatility. Interestingly, higher risk aversion generally exacerbates the excess volatility of prices. Moreover, the model predicts that if a big systemic shock hits the financial system, due to salience bias the price of systemic assets falls sharply. This relates to the observed fire-sales of assets during the global financial crisis.Practical implicationsThe proposed model and results suggest that there may be a scope for intervention in financial markets during turbulences. In terms of ex ante policies the study suggests that investors and regulator should use better risk assessment technologies.Originality/valueThis is the first study constructing a tractable model based on the argument that investor salience may exacerbate the excess volatility of prices during financial downturns. The author relate salience to two types of risk; idiosyncratic and systemic and assume that investors' risk perception is biased towards the type of risk that is currently salient based on prior beliefs or past data. The author show that the diversification fallacy of the precrisis period, where seemingly safe assets were overpriced, can be explained by agents overweighing idiosyncratic risk and ignoring systemic risk.

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“…They compare the effect of a wealth tax and a net equivalent income tax on risk-taking and find greater risk taking in the presence of a wealth tax, which they explain with misperceived 'low' wealth tax rate. Möhlmann (2013) demonstrates that subjects invest in riskier portfolios in case of a foreign tax rather than a domestic tax on foreign dividend income. This shows that sentiment towards different tax collectors affects decision making.…”

Section: Tax Misperception Investment Decisions and Risk-takingmentioning

confidence: 99%

Tax Misperception and its Effects on Decision Making – Literature Review and Behavioral Taxpayer Response Model

Blaufus

Chirvi

Huber

et al. 2020

European Accounting Review

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Previous accounting research shows that taxes affect decision making by individuals and firms. Most studies assume that agents have an accurate perception regarding their tax burden. However, there is a growing body of literature analyzing whether taxes are indeed perceived correctly. We review 128 studies on the measurement of tax misperception and its behavioral implications. The review reveals that many taxpayers have substantial tax misperceptions that lead to biased decision making. We develop a Behavioral Taxpayer Response Model on the impact of provided tax information on tax perception. Besides individual traits, characteristics of the tax information and the decision environment determine the extent of tax misperception. We discuss opportunities for future research and methodological limitations. While there is much evidence on tax misperception at the individual level, we hardly find any research at the firm level. Little is known about the real effects of managers' tax misperception and on how tax information is strategically managed to impact stakeholders. This research gap is surprising as a large part of the accounting literature analyzes decision making and disclosure of firms. We recommend a mixed-method approach combining experiments, surveys, and archival data analyses to improve the knowledge on tax misperception and its consequences.

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Investor home bias and sentiment about the country benefiting from the tax revenue

Cited by 5 publications

References 46 publications

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

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

Investor bias, risk and price volatility

Tax Misperception and its Effects on Decision Making – Literature Review and Behavioral Taxpayer Response Model

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