In this course, you will start by reviewing the fundamentals of investments, including the trading off of return and risk when forming a portfolio, asset pricing models such as the Capital Asset Pricing Model (CAPM) and the 3-Factor Model, and the efficient market hypothesis. You will be introduced to the two components of stock returns – dividends and capital gains – and will learn how each are taxed and the incentives provided to investors from a realization-based capital gains tax. You will examine the investment decisions (and behavioral biases) of participants in defined-contribution (DC) pension plans like 401(k) plans in the U.S. and will learn about the evidence regarding the performance of individual investors in their stock portfolios. The course concludes by discussing the evidence regarding the performance of actively-managed mutual funds. You will learn about the fees charged to investors by mutual funds and the evidence regarding the relation between fees charged and fund performance. Segments of the portfolios of mutual funds that may be more likely to outperform and examples of strategies designed to “earn alpha” will also be introduced. Learners are welcome to take this course even if they have not completed "Investments I: Fundamentals of Performance Evaluation," as the first module contain a review of investment fundamentals and regression analysis to get everyone up to speed. Also, the course contains several innovative features, including creative out-of-the-studio introductions followed by quick-hitting "Module in 60" countdowns that highlight what will be covered in each module, four "Faculty Focus" interview episodes with leading professors in finance, and a summary of each module done with the help of animations! This course is part of the iMBA offered by the University of Illinois, a flexible, fully-accredited online MBA at an incredibly competitive price. For more information, please see the Resource page in this course and onlinemba.illinois.edu.
3-2.4. Effects of Loss Aversion (Part 2): Personal Connection to Asset
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来自 University of Illinois at Urbana-Champaign 的课程
Investments II: Lessons and Applications for Investors
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从本节课中
Module 3: Performance of Individual Investors
In Module 3, we will learn about the evidence regarding the performance of individual investors in their stock portfolios. A few key behavioral biases that affect many individuals will be highlighted, and the potential information embedded in some parts of individual investors’ stock portfolios will be discussed.
与讲师见面
Scott WeisbennerWilliam G. Karnes Professor of Finance
Department of Finance, College of Business
[MUSIC]
So in this video, we're going to talk about how having a personal connection
with an asset, or the lack of a personal connection with the asset,
affects loss aversion, and thus, trading of that asset.
So right off the bat, let's kind of bring out Le Pensur to get you thinking right
off the top with a pause, think, and answer.
So what might be an asset that an individual owns
that they have a strong personal connection?
So why don't you think about that, and let me give a few examples?
So, what did you think?
What are the types of assets an individual might have a strong
personal connection with?
Well, you might think, right off the bat, your house.
This lady looks kind of very satisfied with this house behind her here.
After all, this is an asset that you live in.
You likely have this very strong personal attachment with, all right?
You could also think that you have collectables.
You bought this, this is also an asset you have that can appreciate and
depreciate in value.
But since it’s kind of part of a collection,
you probably have a very strong, emotional, personal attachment.
And given loss aversion is based on psychology emotion,
you would think the strong as your emotional tie to the asset,
the stronger might be loss aversion affect.
So when we're talking about housing, you can also buy a house for
investment purposes, right?
So the prediction'd probably be that for owner occupied housing,
you should have a stronger personal connection.
Stronger, thus loss aversion effects.
So Genesove and Mayer actually did a study thinking about this intuition,
is loss aversion strong in the Boston condominium market, okay?
So controlling for the usual determinants of house prices,
the seller's original purchase price also matters for
the listing price of the house, and the likelihood of sale.
So economically, you'd think all that matters are the current conditions in
the housing market, but loss aversion also seems to have an impact.
If the seller's original purchase price is influencing that kind of market for
that house.
So Genesove and
Mayer, when you dig into their study, they have several interesting findings.
First, for a house that has fallen in value since purchase,
when the owner lists it, controlling for the attributes of the house,
the owner will ask for a higher price, which is consistent with a loss aversion.
Like, hey, I bought the house up here, I'm asking for a price probably here or
a little more, because I don't want to realize a loss on this psychologically.
Not surprisingly, if the house has fallen in value since purchased from the owner,
they ask for a higher price.
You also see that it takes longer for the house to sell,
because there can be kind of a potential breakdown in the market that for buyers,
all they care about is what's the current price?
But for sellers, they maybe influenced by what they paid.
And if housing prices have fallen since the original owner bought the house,
there maybe a problem.
Like the buyer's willing to pay here,
the seller still has in mind this original price from a long time ago.
Prices have fallen since then,
they still have this high price in mind when they want to sell.
So it might take a long time to bridge that gap.
Also, as we talked about, the effect of this loss aversion on the house market
is twice as large for owner-occupants, as opposed to investors, okay?
So those who are buying a house for investing purposes, loss aversion has less
of an effect on their listing price, and how long those houses are for
sale, as opposed where it's an owner-occupant, okay?
So the results imply loss aversion have a big impact on liquidity of
the housing market when you have a sharp decline in prices.
Prospective buyers don't care what the current owner paid for the house.
They just care about the attributes and what those attributes,
given the current economic conditions, suggest should be the house price.
So maybe someone bought it at $700,000 three years ago.
Housing prices have fallen, current market value is $500,000,
that's what's relevant for the buyer.
But the seller may still have that $700,000 benchmark in mind.
So it may be very difficult to bridge this gap if the seller is subject
to loss aversion, which a Genesove Meyer study finds evidence of, okay?
Loss aversion, because of this effect that it has on the liquidity of
the housing market, particularly following a sharp decline at prices,
where sellers may be attached to this kind of high price that they originally bought.
Buyers just care about what’s the current market price.
That likely would suggest loss aversion has an effect
on the rental market for homes.
When you have buyers wanting a price here,
what they paid originally, prices have fallen since then.
Excuse me, sellers want this higher price, reflecting what they paid originally.
Prices have fallen, so buyers are kind of expecting a lower price.
May take a long time to bridge this gap.
So it might suggest more homes get put on the rental market,
if it's hard to come to terms for a deal on the house, okay?
So now, let's kind of think again, a couple questions.
First, do you find it useful to have someone to blame, okay?
So the quick answer is of course, yes, we're human beings.
But let's bring this back to kind of finance, here's the real question.
Let's assume it's useful to have someone to blame.
If so, might this affect to whom you attribute the loss or
gain in a stock investment versus a mutual fund holding?
So assuming you find it useful to have someone to blame,
is this going to affect your loss aversion regarding the performance of
a stock holding, as opposed to a mutual fund holding?
So think about that, and I'll give you my take afterwards.
All right, does having someone to blame affect how you trade different assets?
So work I've done with Jim Poterba and Zoran Ivkovic on a couple studies,
we examine factors that influence individual's decisions to trade and
sell stock and mutual fund holdings.
And we use data, the same data used by Barber and Odean in their 2000 study.
This data in over 60,000 individual investors from an anonymous
discount brokerage house over the period 1991 to 1996.
And we actually find a striking difference in the relation between the likelihood
of sale and past performance across the different types of investments.
There's a different relationship between are you more likely to sell
following a gain or a loss in stock investments, than there is for
mutual fund investments, even for the same person, within the same household.
So let's just look at a few of those kind of basic
figures that document this striking difference here.
So here, we're just looking at the likelihood of selling stocks
in a taxable account, given how many months after purchase.
So you see, as you've held the stock longer and
longer, the likelihood of selling in a given month basically declines.
But what's interesting, is how that relationship of selling a stock
that has a gain varies with selling a stock that has a loss.
So if you have a gain entering the month, that's the black line here.
If you have a loss on that stock investment entering the month,
that's a gray line, okay?
And what do you basically see?
The black line is above the gray line.
So across all these months, like here, we're looking at let's say month 15.
So given this is your 15th month of holding this stock,
if you have a gain during the first 14 months, you're more likely to
sell the stock than if you have a loss during the first 14 months.
So for stocks, it's very clear.
You're more likely to sell stocks that have gone up,
than stocks that have gone down.
Now remember, in this study we also documented that this effect
is even larger for holdings in tax-deferred accounts.
And the tax-deferred accounts are even more likely to sell winners and
hold onto losers, which suggests on the margin, tax motivations are kind of
weakening the loss aversion effect for stock trades in taxable accounts.
But you still have this bottom line that you're more likely to realize gains and
losses in these taxable accounts for stocks.
Now let's look at mutual fund.
What causes you to sell a mutual fund holding, again, in your taxable account?
So here we switched.
In this graph the black line represents you had a loss entering the month,
the gray line represents you had a gain entering the month.
So it's exactly the opposite pattern.
The likelihood of selling mutual fund holdings that have a loss
entering the month, this black line here, with a dashed lined around it,
giving our 95% confident in it's intervals of estimate.
But just focus on the solid black line here,
this likelihood of selling of mutual fund that you entered the month with a loss.
You're more likely to sell, higher likelihood of sale, than if you enter
the month with a gain in the mutual fund holding, so exactly the opposite.
For stocks, you're more likely the sell if they've gone up since purchase.
But for mutual funds,
you're more likely to sell if they've gone down since purchase.
So for mutual funds it's more consistent with a direct tax effect.
Sell the losing mutual fund holdings, hold onto the winning one, okay?
So on average, investors are more likely to realize gains and losses for stocks.
But more likely to realize losses than gains for mutual funds,
look at their holdings and their taxable accounts.
So it seems a loss aversion effect is important for stock trading, and
seems to be even more important than the tax effect.
It's much less so, or not even present at all, for mutual fund trades.
So for mutual fund trades, the tax effects seem to dominate, while the loss
aversion effects are much less important, or maybe aren't present at all, okay?
So Chang, Solomon, and Westerfield attribute this difference
in the loss aversion effects across these two types of investments, stocks and
mutual funds, to having someone to blame.
For stock investments,
the individual is likely to blame or credit themselves for the performance.
So then the psychology of I don't want to realize this loss.
It's admitting I'm a bad investor.
And if I have a gain I want to cash this in so
I feel like a good investor, that's then prominent for stocks.
For mutual funds, it's easy for the individual to credit or
blame the mutual fund manager, as opposed to themselves, for
the bad picks that the mutual fund manager made in the fund.
So you take away then the psychology of this loss aversion.
You're not feeling the downside of a losing investment, because
you're not the mutual fund manager that picked the individual stock in the fund.
You take away the loss aversion effect, then taxes and
other motivations become more important for mutual funds, okay?
So the ability to blame someone else removes the loss aversion psychology
from mutual fund selling decisions.
The lack of this loss aversion effect allows mutual funds sales and
taxable accounts to reflect tax incentives.
Hold on to winners and sell losers.
Because you don't have any of this psychological loss aversion effect,
because you're not the one that you kind of psychologically credit or blame for
the performance.
That's shifted to the mutual fund manager.
So we all like to transfer blame here.
But I love this picture from this coffee shop,
kind of don't blame the holidays, you were chubby in August, okay?
So when we're thinking financially, if you blame the mutual fund manager for
the performance of the fund and that transfer of blame causes you to focus
on things like tax incentives for whether you should sell a fund holding, great.
But don't blame the coffee shop for being fat in January.
Take it from me, you were probably fat before the holidays
[SOUND]
