Can the Past Hinder Investor Learning?

39 Pages Posted: 3 Oct 2016 Last revised: 1 Dec 2021

See all articles by William Bazley

William Bazley

University of Kansas

George M. Korniotis

University of Miami; Miami Business School; University of Miami - Behavioral Decision Making Cluster

Gregory R. Samanez-Larkin

Duke University - Department of Psychology and Neuroscience; Duke University - Center for Cognitive Neuroscience

Multiple version iconThere are 2 versions of this paper

Date Written: November 30, 2021

Abstract

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

Bazley, William and Korniotis, George M. and Samanez-Larkin, Gregory R., Can the Past Hinder Investor Learning? (November 30, 2021). Available at SSRN: https://ssrn.com/abstract=2846504 or http://dx.doi.org/10.2139/ssrn.2846504

William Bazley (Contact Author)

University of Kansas ( email )

3143 Capitol Federal Hall
1654 Naismith Drive
Lawrence, KS 66045
United States

George M. Korniotis

University of Miami ( email )

P.O. Box 248094
Coral Gables, FL 33124-6552
United States
305-284-5728 (Phone)

Miami Business School ( email )

University of Miami - Behavioral Decision Making Cluster ( email )

5250 University Drive
Coral Gables, FL 33124
United States

Gregory R. Samanez-Larkin

Duke University - Department of Psychology and Neuroscience ( email )

Durham, NC 27708
United States

Duke University - Center for Cognitive Neuroscience ( email )

100 Fuqua Drive
Durham, NC 27708-0204
United States

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