Familiarity Breeds Short-Termism

52 Pages Posted: 1 Nov 2019

See all articles by Ellapulli Vasudevan

Ellapulli Vasudevan

Aalto University School of Business - Department of Finance

Date Written: October 23, 2019

Abstract

Investors exhibit a robust and systematic pattern of shortening their holding period in a stock on which they execute multiple round trip trades. On average, the holding period shortens by 11% with each additional round trip. I show this tendency to be short-termed is associated with reinforcement learning. Investors are more likely to shorten the holding period after a round trip where they could have realized a better return had they sold earlier. Investors become short-termed as they become more familiar with trading a stock.

Keywords: Short-termism, Individual Investors, Familiarity, Reinforcement Learning

JEL Classification: G11, G41

Suggested Citation

Vasudevan, Ellapulli, Familiarity Breeds Short-Termism (October 23, 2019). Available at SSRN: https://ssrn.com/abstract=3474332

Ellapulli Vasudevan (Contact Author)

Aalto University School of Business - Department of Finance ( email )

Finland

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