The Follow-on Purchase and Repurchase Behavior of Individual Investors : An Experimental Investigation

Weber, Martin ; Welfens, Frank

002_SSRN_ID1022927_code450170.pdf - Published

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URN: urn:nbn:de:bsz:180-madoc-17751
Document Type: Working paper
Year of publication: 2007
The title of a journal, publication series: None
Publication language: English
Institution: Business School > Sonstige - Fakultät für Betriebswirtschaftslehre
MADOC publication series: Lehrstuhl für ABWL, Finanzwirtschaft, insb. Bankbetriebslehre (Weber) > Working Papers
Subject: 330 Economics
Classification: JEL: G11 D81 D14 C91 ,
Subject headings (SWD): Wiederkauf , Investor , Anlageverhalten
Keywords (English): Repurchase , Counterfactual Thinking , Experiment
Abstract: We analyze two recently documented follow-on purchase and repurchase patterns experimentally: Individual investors’ preference for purchasing additional shares of a stock that decreased rather than increased in value succeeding an initial purchase (pattern 1) and investors’ tendency for purchasing stocks that they previously sold at a higher price (pattern 2). Similar to the field data study by Odean, Strahilevitz, and Barber (2004), subjects in our experiment are about 2.5 to 3 times as likely to purchase units of a single fictitious good if the price of the good declined following a purchase or sale in the previous period. As an assignment of choices clearly reduces the effect, we argue that investors are involved in counterfactual thinking: They refrain from purchasing additional shares or repurchasing shares at a higher price because doing so means admitting to their ex post wrong decision.
Additional information: Available at SSRN: SSRN_ID1022927_code450170.pdf

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