Can the Past Hinder Investor Learning?
39 Pages Posted: 3 Oct 2016 Last revised: 1 Dec 2021
Date Written: November 30, 2021
We confirm the puzzling finding that learning is limited among retail investors. To investigate why, we follow the psychology literature, which indicates that individuals strongly recall their first and last decisions. Similarly, we find that portfolio decisions made near the account opening and in the most recent period significantly influence investors' future choices. Reliance on these past decisions leads to a 3.16% reduction in performance during the months when investors trade. Overall, our findings suggest that learning may be limited because investors may be overly affected by their previous choices, which can hinder them from optimally updating their portfolio strategies.
Keywords: Diversification, Trading frequency, Portfolio Performance, Serial Position Effect
JEL Classification: G10, G11
Suggested Citation: Suggested Citation