Natural-Disaster Experience and Risk-taking Behaviors: Evidence from Individual Investor Trading

56 Pages Posted: 9 Jul 2019

See all articles by Dien Giau Bui

Dien Giau Bui

National Taiwan University, Department of Finance, Students

Iftekhar Hasan

Fordham University - Gabelli School of Business; Bank of Finland

Chih-Yung Lin

National Chiao-Tung University

Gaiyan Zhang

University of Missouri at St. Louis - College of Business Administration

Date Written: May 1, 2019

Abstract

This research analyzes how experiencing a natural disaster influences individual investor trading in the stock market. Exploiting a unique stock trading dataset of retail investors in Taiwan, we determine that individual investors who experienced major natural disasters trade more aggressively and earn abnormal returns than do those who lack such experience. Difference-in-Difference analysis confirms our finding. Furthermore, this effect is considerably stronger for stocks preferred by individual investors. Our results imply that individual investors who experience major natural disasters become more risk-tolerant. Our finding is further corroborated by tests based on disease and fire experiences.

Keywords: Natural disaster experience, individual investors, trading behavior, gambling stocks, abnormal returns.

JEL Classification: G11, G12, G40

Suggested Citation

Bui, Dien Giau and Hasan, Iftekhar and Lin, Chih-Yung and Zhang, Gaiyan, Natural-Disaster Experience and Risk-taking Behaviors: Evidence from Individual Investor Trading (May 1, 2019). Available at SSRN: https://ssrn.com/abstract=3416008 or http://dx.doi.org/10.2139/ssrn.3416008

Dien Giau Bui

National Taiwan University, Department of Finance, Students ( email )

1, Sec. 4, Roosevelt Road
Taipei
Taiwan

Iftekhar Hasan

Fordham University - Gabelli School of Business ( email )

Rose Hill Campus Bronx
New York, NY 10458
United States

Bank of Finland ( email )

P.O. Box 160
Helsinki 00101
Finland

Chih-Yung Lin (Contact Author)

National Chiao-Tung University ( email )

Taiwan

Gaiyan Zhang

University of Missouri at St. Louis - College of Business Administration ( email )

One University Blvd
St. Louis, MO 63121
United States

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