Is Buying more Forward-Looking than Selling? The Role of Beliefs in Investment Decisions

39 Pages Posted: 24 May 2017 Last revised: 14 Jul 2020

See all articles by Daniel Grosshans

Daniel Grosshans

University of Zurich - Department of Banking and Finance

Ferdinand Langnickel

University of Zurich, Department of Banking and Finance

Stefan Zeisberger

Radboud University, Institute for Management Research; University of Zurich, Department of Banking and Finance

Date Written: July 8, 2020

Abstract

We provide evidence that people do not consistently incorporate their beliefs into investment decisions. Our experimental findings indicate that selling is considerably less belief-driven than buying. This difference stems from selling decisions in the presence of paper losses for which we observe that the belief sensitivity is reduced by half. Selling decisions for paper gains, however, are as sensitive to beliefs as buying decisions. The lower belief sensitivity for selling decisions holds also in settings where investors’ accounts are neutralized in each period, albeit with a lower magnitude. While buying decisions increase investors’ wealth we find selling decisions to have a negative effect.

Keywords: belief formation, use of beliefs, forecasting, trading behavior, behavioral finance

JEL Classification: G11, G17, G41

Suggested Citation

Grosshans, Daniel and Langnickel, Ferdinand and Zeisberger, Stefan, Is Buying more Forward-Looking than Selling? The Role of Beliefs in Investment Decisions (July 8, 2020). Available at SSRN: https://ssrn.com/abstract=2972112 or http://dx.doi.org/10.2139/ssrn.2972112

Daniel Grosshans

University of Zurich - Department of Banking and Finance ( email )

Plattenstrasse 32
Zürich, 8032
Switzerland

Ferdinand Langnickel (Contact Author)

University of Zurich, Department of Banking and Finance ( email )

Schönberggasse 1
Zurich
Switzerland

Stefan Zeisberger

Radboud University, Institute for Management Research ( email )

Nijmegen
Netherlands

University of Zurich, Department of Banking and Finance ( email )

Zürich
Switzerland

Here is the Coronavirus
related research on SSRN

Paper statistics

Downloads
426
Abstract Views
2,181
rank
78,465
PlumX Metrics