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Past Performance Framing and Investors’ Belief Updating: Is Seeing Long-Term Returns Always Associated with Smaller Belief Updates?

Journal of Behavioral and Experimental Finance, Forthcoming

47 Pages Posted: 20 May 2015 Last revised: 15 Jul 2017

Patrick Gerhard

Maastricht University

Arvid O. I. Hoffmann

University of Adelaide - Business School; Network for Studies on Pensions, Aging and Retirement (Netspar)

Thomas Post

Maastricht University - School of Business and Economics - Department of Finance; Netspar

Date Written: January 27, 2017

Abstract

Prior research shows that investors with smaller belief updates trade less actively, which positively affects their return performance. We examine the effect of different default frames of presenting past return information on investors’ belief updating. In particular, we analyze whether presenting longer information horizons as a default is associated with smaller belief updates. In lab and online experiments, we expose subjects to different past return information defaults and measure updates in their beliefs. Different from previous research, our subjects can easily opt out of the default to obtain additional information. We find that presenting long-term return information is not effective in reducing belief updates on average. Whereas belief updates are reduced for subjects who remain in their default, for those who opt out, we observe the opposite.

Keywords: Default Options, Framing, Household Finance, Investor Beliefs, Belief Updating

JEL Classification: D14, D81, D83, D84, G02, G21, M31

Suggested Citation

Gerhard, Patrick and Hoffmann, Arvid O. I. and Post, Thomas, Past Performance Framing and Investors’ Belief Updating: Is Seeing Long-Term Returns Always Associated with Smaller Belief Updates? (January 27, 2017). Journal of Behavioral and Experimental Finance, Forthcoming. Available at SSRN: https://ssrn.com/abstract=2607521 or http://dx.doi.org/10.2139/ssrn.2607521

Patrick Gerhard

Maastricht University ( email )

P.O. Box 616
Maastricht, 6200MD
Netherlands

Arvid O. I. Hoffmann (Contact Author)

University of Adelaide - Business School ( email )

10 Pulteney Street
Adelaide, South Australia 5005
Australia

Network for Studies on Pensions, Aging and Retirement (Netspar)

P.O. Box 90153
Tilburg, 5000 LE
Netherlands

Thomas Post

Maastricht University - School of Business and Economics - Department of Finance ( email )

Tongersestraat 53
Maastricht, 6200 MD
Netherlands
+31 43 38 83899 (Phone)
+31 43 38 84875 (Fax)

HOME PAGE: http://www.thomas-post.com

Netspar ( email )

P.O. Box 90153
Tilburg, 5000 LE
Netherlands

HOME PAGE: http://www.netspar.nl

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