Loss-aversion and household portfolio choice

Dimmock, Stephen G.; Kouwenberg, Roy

doi:10.1016/j.jempfin.2009.11.005

Cited by 165 publications

(63 citation statements)

References 49 publications

(89 reference statements)

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“…5 From those 2,226 individuals, we obtain responses from 687 investors, indicating that about 30% of the contacted panel members are investors. This percentage is comparable to the equity ownership rates in the Netherlands reported by Alessie, Hochguertel, and van Soest (2004), and Dimmock and Kouwenberg (2010). We combine the survey on MLA with the Dutch National Bank Household survey (DHS) which includes extensive financial, demographic and psychological information.…”

Section: Sample Selectionmentioning

confidence: 73%

“…If the individual states ƒ200 to be his required reduction, the tax assessment will be reduced to ƒ800, to be paid immediately. From the answers to the 16 questions, we winsorise extreme values and undertake a validity check for two types of judgment errors following the approach of Dimmock and Kouwenberg (2010). First, we discard respondents who answer zero to all questions each year as we assume that they did not fully consider the questions 11 .…”

Section: Measuring Individuals' Loss Aversion Coefficients and Discoumentioning

confidence: 99%

“…From the calculated ratios for each of the intertemporal choice questions, we derive equations based on the full reference point adjustment model of Loewenstein (1988), which provides the most effective results according to the findings of Dimmock and Kouwenberg (2010 and Kahneman (1992) who find that individuals have a loss aversion coefficient of 2.25. We check whether loss aversion is highly correlated with both evaluation and rebalancing frequencies in order to rule out the possible selection effect of loss aversion on myopic behaviour.…”

Section: Measuring Individuals' Loss Aversion Coefficients and Discoumentioning

confidence: 99%

“…Loss Aversion (LA) = coefficient of loss aversion estimated using the procedure described in Dimmock and Kouwenberg (2010).…”

Section: Table 5 the Effect Of Mla On The Investment Levelmentioning

confidence: 99%

“…To the best of our knowledge, our study is the first empirical study of MLA to focus on the relationship between both investors' myopia and loss aversion and their equity investments. Dimmock and Kouwenberg (2010) also analyse the investment decisions of individual investors with real-life data, but focus exclusively on loss aversion as an explanation for household portfolio choice. They do not address the effects of investors' myopia or MLA.…”

Section: Introductionmentioning

confidence: 99%

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Myopic loss aversion and stock investments: An empirical study of private investors

Lee

Veld‐Merkoulova

2016

Journal of Banking & Finance

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Myopic loss aversion was suggested by Benartzi and Thaler (1995) as an explanation for the equity premium puzzle. Its main prediction is that loss averse investors, who evaluate their investment performance too frequently and therefore often observe small losses on their stock portfolios, would invest too little in equity. We investigate the link between myopic loss aversion and actual investment decisions of individual investors, using survey data. Our results are consistent with the predictions of Benartzi and Thaler. Higher myopic loss aversion is associated with lower stock investment as a share of total assets. Investors tend to evaluate their stock portfolio performance too often, which contributes to the prevalence of myopic loss aversion. The effect of myopia is most apparent when investors both evaluate their portfolios frequently and trade stocks regularly.

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Section: Sample Selectionmentioning

confidence: 73%

Section: Measuring Individuals' Loss Aversion Coefficients and Discoumentioning

confidence: 99%

Section: Measuring Individuals' Loss Aversion Coefficients and Discoumentioning

confidence: 99%

“…Loss Aversion (LA) = coefficient of loss aversion estimated using the procedure described in Dimmock and Kouwenberg (2010).…”

Section: Table 5 the Effect Of Mla On The Investment Levelmentioning

confidence: 99%

Section: Introductionmentioning

confidence: 99%

See 3 more Smart Citations

Myopic loss aversion and stock investments: An empirical study of private investors

Lee

Veld‐Merkoulova

2016

Journal of Banking & Finance

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Religion and Finance

Renneboog¹,

Spaenjers²

2012

Socially Responsible Finance and Investing

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Measuring risk‐taking and patience in financial decision making

2021

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The literature is rich in evidence of substantial heterogeneity in individual investment decisions, such as the choice of portfolio structure and savings behavior. The way individuals build their financial portfolios has been an increasingly relevant issue for economists and policy-makers alike. Economic theory suggests that household portfolio choice depends, among other things, on an individual's level of patience and willingness to take risk. These factors are also understood as the root of many economic phenomena (Donkers & van Soest, 1999).The study on financial decision making is challenging because individual preferences are difficult to measure. The literature has proposed distinct frameworks, such as the sophisticated models of the well-established prospect theory or the quasihyperbolic discounting model, to elicit relevant parameters. Collecting data on portfolio selection may also be complicated. Real-life data on portfolio choices can be difficult and expensive to obtain. Survey data are usually easier and cheaper to collect, but findings based on it cannot always be generalized. Incentivized laboratory experiments offer an interesting trade-off between generalizability and cost efficiency.There is little consensus in the literature on how the level of patience and willingness to take risk should be measured to ensure consistent and reliable results. Financial advisors and private bankers still rely on rather rough estimates based on nonsophisticated measuring methods. Previous studies investigating different elicitation methods have revealed puzzling outcomes and large inconsistencies. A low correlation among different measures is a recurrent finding (see, e.g., Crosetto & Filippin, 2016;Szrek et al. 2012;Pedroni et al., 2017). Although self-reported measures for risk-taking show slightly higher consistency

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Loss-aversion and household portfolio choice

Cited by 165 publications

References 49 publications

Myopic loss aversion and stock investments: An empirical study of private investors

Myopic loss aversion and stock investments: An empirical study of private investors

Religion and Finance

Measuring risk‐taking and patience in financial decision making

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