Primacy in Stock Market Participation: The Effect of Initial Returns on Market Re-Entry Decisions

European Journal of Finance, Vol. 25, 883-909, 2019

66 Pages Posted: 26 Aug 2017 Last revised: 19 Nov 2020

See all articles by Ozlem Arikan

Ozlem Arikan

Aston Business School

Arie Eskenazi Gozluklu

University of Warwick

Gi H. Kim

Warwick Business School - University of Warwick

Hiroaki Sakaguchi

University of Warwick

Date Written: March 1, 2018

Abstract

We examine whether initial returns influence investors’ decisions to return to the stock market following withdrawal. Using a survival analysis technique to estimate Finnish retail investors’ likelihood of stock market re-entry reveals that investors who experience lower initial returns are less likely to return, even after controlling for returns in the last month and average monthly returns for the duration of investing. This primacy effect is robust to accounting for endogeneity in investors’ exit decisions, and other behavioural biases such as recency and saliency of investment experience. Individual investors appear to be subject to primacy bias and tend to put a significant weight on initial experiences in re-entry decisions.

Keywords: Individual Investor Behavior, Stock Market Participation, Experiential Learning, Primacy Effect, Stock Market Re-entry Decision

JEL Classification: G00, G02, G10, G11

Suggested Citation

Arikan, Ozlem and Gozluklu, Arie Eskenazi and Kim, Gi Hyun and Sakaguchi, Hiroaki, Primacy in Stock Market Participation: The Effect of Initial Returns on Market Re-Entry Decisions (March 1, 2018). European Journal of Finance, Vol. 25, 883-909, 2019, Available at SSRN: https://ssrn.com/abstract=3024681 or http://dx.doi.org/10.2139/ssrn.3024681

Ozlem Arikan

Aston Business School ( email )

Aston Triangle
Birmingham, B47ET
United Kingdom

Arie Eskenazi Gozluklu

University of Warwick ( email )

Gibbet Hill Rd
Coventry, CV4 7AL
Great Britain

HOME PAGE: http://www.arieskenazi.com

Gi Hyun Kim (Contact Author)

Warwick Business School - University of Warwick ( email )

Coventry CV4 7AL
United Kingdom
+44 (0)24 7652 3849 (Phone)

Hiroaki Sakaguchi

University of Warwick ( email )

Gibbet Hill Rd.
Coventry, West Midlands CV4 8UW
United Kingdom

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