Paying Attention: Investor Account Look-Ups and Information - Dependent Utility
35 Pages Posted: 18 Mar 2012
Date Written: March 15, 2012
Using data on daily login decisions for a large sample of on-line 401(k) accounts, we investigate what drives investors to pay attention to their personal portfolios. We find that that the number of investors who check their accounts drops by 8.7% following a market decline compared to a market increase. This positive relation between attention and lagged returns is consistent with a prediction of information-dependent utility called the Ostrich Effect. We confirm that the Ostrich Effect is robust to various specifications, and show how it varies with investor characteristics. We also confirm that ostrich behavior is a relatively stable personal characteristic over time: Individuals who display ostrich behavior in 2007 are more likely to display it in 2008. The Ostrich Effect, however, seems to be swamped by information-seeking following extreme market changes such as those at the time of the 2008 stock market crash.
Keywords: attention, investor account logins, Ostrich effect
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