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How price path characteristics shape investment behavior

Nolte, Sven and Schneider, Judith C. (2018) How price path characteristics shape investment behavior. Journal of Economic Behavior and Organization, 154 . pp. 33-59. ISSN 0167-2681. http://resolver.caltech.edu/CaltechAUTHORS:20180817-103117385

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Abstract

Price paths are often the only graphical representation of financial products investors receive before making an investment decision. We argue that price paths serve as ”graphical” frames that influence the perceived attractiveness of an asset by highlighting specific asset characteristics. In a controlled lab experiment we find that price paths have an impact on investment decisions. In a regression we test a simple model relating the perception of price path shapes to several heuristics. These heuristics are: focusing on more recent outcomes, deriving implicit reference prices from focal prices, focusing on losses, and estimating risk from the amplitude of the path. We conclude that investment decisions are systematically biased due to the shape of an asset’s price path.


Item Type:Article
Related URLs:
URLURL TypeDescription
https://doi.org/10.1016/j.jebo.2018.07.018DOIArticle
ORCID:
AuthorORCID
Nolte, Sven0000-0002-5393-6326
Additional Information:© 2018 Elsevier B.V. Received 10 November 2017, Revised 20 July 2018, Accepted 29 July 2018, Available online 17 August 2018.
Subject Keywords:Experiment; Price paths; Behavioral investment choice; Reference point; Attribute framing; Loss aversion
Record Number:CaltechAUTHORS:20180817-103117385
Persistent URL:http://resolver.caltech.edu/CaltechAUTHORS:20180817-103117385
Official Citation:Sven Nolte, Judith C. Schneider, How price path characteristics shape investment behavior, Journal of Economic Behavior & Organization, Volume 154, 2018, Pages 33-59, ISSN 0167-2681, https://doi.org/10.1016/j.jebo.2018.07.018. (http://www.sciencedirect.com/science/article/pii/S0167268118302038)
Usage Policy:No commercial reproduction, distribution, display or performance rights in this work are provided.
ID Code:88895
Collection:CaltechAUTHORS
Deposited By: Tony Diaz
Deposited On:17 Aug 2018 17:36
Last Modified:17 Aug 2018 17:36

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