Familiarity Breeds Short-Termism

52 Pages Posted: 1 Nov 2019

See all articles by Ellapulli V. Vasudevan

Ellapulli V. Vasudevan

Indian Institute of Management (IIM), Ahmedabad

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 V., Familiarity Breeds Short-Termism (October 23, 2019). Available at SSRN: https://ssrn.com/abstract=3474332 or http://dx.doi.org/10.2139/ssrn.3474332

Ellapulli V. Vasudevan (Contact Author)

Indian Institute of Management (IIM), Ahmedabad ( email )

Vastrapur
Ahmedabad, Gujarat 380 015
India

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