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Sell Winners and Buy Losers? The Impact of Familiarity on Individual Investors’ Decision-Making: Experimental Results

Author

Listed:
  • Vladislav Zhdanov

    (Higher School of Economics, 101000 Moscow, Russia)

  • Artem Simonov

    (Boston Consulting Group (Russia), 125047 Moscow, Russia)

Abstract

Purpose: This article analyzes the influence of familiarity bias on respondents’ decision-making process, using results from online experiments. Design/methodology/approach: A total of 255 research participants from post-Soviet countries completed 510 online tests that were presented in the form of investment games. In the games, the respondents were allowed to sell, buy, or hold two types of asset portfolios: familiar and unfamiliar assets. Findings: Holders of portfolios with familiar assets were 1.34 times more likely to be persistent in selling winners and holding losers and 1.10 times more likely to be persistent in buying fallen assets than holders of unfamiliar portfolios. Moreover, respondents who managed familiar assets tended to generate terminal result distributions with a kurtosis that was 27.8% higher than the distributions of those managing unfamiliar assets. Originality: Several academic studies have examined familiarity bias, the disposition effect, the positive feedback trading of individual investors, and risk-seeking trading; however, they investigated these topics separately. In the current study, we therefore created an online experiment to identify new aspects of investor behavior.

Suggested Citation

  • Vladislav Zhdanov & Artem Simonov, 2021. "Sell Winners and Buy Losers? The Impact of Familiarity on Individual Investors’ Decision-Making: Experimental Results," IJFS, MDPI, vol. 9(3), pages 1-8, September.
    • Handle: RePEc:gam:jijfss:v:9:y:2021:i:3:p:47-:d:627578
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    References listed on IDEAS

    as
    1. Bulipopova, Ekaterina & Zhdanov, Vladislav & Simonov, Artem, 2014. "Do investors hold that they know? Impact of familiarity bias on investor’s reluctance to realize losses: Experimental approach," Finance Research Letters, Elsevier, vol. 11(4), pages 463-469.
    2. Brad M. Barber & Yi‐Tsung Lee & Yu‐Jane Liu & Terrance Odean, 2007. "Is the Aggregate Investor Reluctant to Realise Losses? Evidence from Taiwan," European Financial Management, European Financial Management Association, vol. 13(3), pages 423-447, June.
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