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Winners and losers in investment competition – Experimental study

Author

Listed:
  • Afik, Zvika
  • Dafna, Hofit Hamrani
  • Lahav, Yaron

Abstract

We report the results of lab experiments on investment competition, where all subjects receive their accumulated earnings and the subject with the highest returns earns an additional bonus. We find that ranking is negatively correlated with portfolio risk: when subjects realize that their rank is relatively low, they increase their portfolio risk. This behavior is shared by all subjects in all rankings during all trade periods, regardless of the risk-free rate. Furthermore, in a competition, subjects respond to rank changes, increasing (decreasing) their portfolio risk after experiencing a decrease (increase) in their rating, regardless of their ranking.

Suggested Citation

  • Afik, Zvika & Dafna, Hofit Hamrani & Lahav, Yaron, 2024. "Winners and losers in investment competition – Experimental study," Finance Research Letters, Elsevier, vol. 61(C).
    • Handle: RePEc:eee:finlet:v:61:y:2024:i:c:s1544612324000497
    DOI: 10.1016/j.frl.2024.105019
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    References listed on IDEAS

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    More about this item

    Keywords

    Investment competition; Investment decision; Portfolio choice; Portfolio risk; Ranking; Relative performance;
    All these keywords.

    JEL classification:

    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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