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Primacy in stock market participation: the effect of initial returns on market re-entry decisions

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  • Ozlem Arikan
  • Arie E. Gozluklu
  • Gi H. Kim
  • Hiroaki Sakaguchi

Abstract

We examine whether initial returns influence investors’ decisions to return to the stock market following withdrawal. Using a survival analysis technique to estimate Finnish retail investors’ likelihood of stock market re-entry reveals that investors who experience lower initial returns are less likely to return, even after controlling for returns in the last month and average monthly returns for the duration of investing. This primacy effect is robust to accounting for endogeneity in investors’ exit decisions, and other behavioural biases such as recency and saliency of investment experience. Individual investors appear to be subject to primacy bias and tend to put a significant weight on initial experiences in re-entry decisions.

Suggested Citation

  • Ozlem Arikan & Arie E. Gozluklu & Gi H. Kim & Hiroaki Sakaguchi, 2019. "Primacy in stock market participation: the effect of initial returns on market re-entry decisions," The European Journal of Finance, Taylor & Francis Journals, vol. 25(10), pages 883-909, July.
    • Handle: RePEc:taf:eurjfi:v:25:y:2019:i:10:p:883-909
    DOI: 10.1080/1351847X.2018.1459764
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    Cited by:

    1. Thomas Holtfort & Andreas Horsch, 2023. "Social science goes quantum: explaining human decision-making, cognitive biases and Darwinian selection from a quantum perspective," Journal of Bioeconomics, Springer, vol. 25(2), pages 99-116, August.
    2. Holtfort, Thomas, 2023. "Quantenökonomie: Einfluss der Quantenphysik auf ökonomische Entscheidungsprozesse," Arbeitspapiere der FOM 88, FOM Hochschule für Oekonomie & Management.

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