Abstract

http://ssrn.com/abstract=2032697
 
 

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Self-Enhancing Transmission Bias and Active Investing


Bing Han


University of Toronto, Rotman School of Management

David A. Hirshleifer


University of California, Irvine - Paul Merage School of Business

April 1, 2012


Abstract:     
Individual investors often invest actively and lose thereby. Social interaction seems to exacerbate this tendency. In the model here, senders' propensity to discuss their strategies' returns, and receivers' propensity to be converted, are increasing in sender return. The rate of conversion of investors to active investing is convex in sender return. Unconditionally, active strategies (high variance, skewness, and personal involvement) dominate the population unless the mean return penalty to active investing is too large. Thus, the model can explain overvaluation of 'active' asset characteristics even when investors have no inherent preference over them.

Keywords: social interactions, self-enhancement, active investing, behavioral finance, behavioral economics, social networks, cultural evolution

working papers series


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Date posted: April 2, 2012  

Suggested Citation

Han, Bing and Hirshleifer, David A., Self-Enhancing Transmission Bias and Active Investing (April 1, 2012). Available at SSRN: http://ssrn.com/abstract=2032697 or http://dx.doi.org/10.2139/ssrn.2032697

Contact Information

Bing Han (Contact Author)
University of Toronto, Rotman School of Management ( email )
Toronto, Ontario M5S 3E6
Canada
4169460732 (Phone)
David A. Hirshleifer
University of California, Irvine - Paul Merage School of Business ( email )
Irvine, CA California 92697-3125
United States
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