Inexperienced Investors and Bubbles
45 Pages Posted: 22 Jun 2008 Last revised: 24 Jul 2022
There are 2 versions of this paper
Inexperienced Investors and Bubbles
Date Written: June 2008
Abstract
We use mutual fund manager data from the technology bubble to examine the hypothesis that inexperienced investors play a role in the formation of asset price bubbles. Using age as a proxy for managers' investment experience, we find that around the peak of the technology bubble, mutual funds run by younger managers are more heavily invested in technology stocks, relative to their style benchmarks, than their older colleagues. Furthermore, young managers, but not old managers, exhibit trend-chasing behavior in their technology stock investments. As a result, young managers increase their technology holdings during the run-up, and decrease them during the downturn. Both results are in line with the behavior of inexperienced investors in experimental asset markets. The economic significance of young managers' actions is amplified by large inflows into their funds prior to the peak in technology stock prices.
Suggested Citation: Suggested Citation
Do you have a job opening that you would like to promote on SSRN?
Recommended Papers
-
Depression Babies: Do Macroeconomic Experiences Affect Risk-Taking?
By Ulrike Malmendier and Stefan Nagel
-
By Amit Seru, Tyler Shumway, ...
-
Inexperienced Investors and Bubbles
By Stefan Nagel and Robin M. Greenwood
-
By Lubos Pastor and Pietro Veronesi
-
By Lubos Pastor and Pietro Veronesi
-
By Lubos Pastor and Pietro Veronesi
-
Advisors and Asset Prices: A Model of the Origins of Bubbles
By José A. Scheinkman, Wei Xiong, ...
-
Do Investors Overweight Personal Experience? Evidence from IPO Subscriptions
By Markku Kaustia and Samuli Knüpfer
-
Natural Expectations, Macroeconomic Dynamics, and Asset Pricing
By Andreas Fuster, Benjamin Hebert, ...