Reluctant Investors: A Behavioral Experiment

The Journal of Wealth Management, Fall 2022, 25 (2) 115-131.

Posted: 2 Aug 2022 Last revised: 31 Oct 2022

See all articles by Denver Travis

Denver Travis

Loyola University New Orleans - College of Business

Mehmet F. Dicle

Loyola University New Orleans - Joseph A. Butt, S.J. College of Business

Abstract

Private wealth managers are often challenged to help reluctant clients make investment decisions in nondiscretionary accounts. Investors may be hesitant, or even too eager, about the price and timing of specific investments. This investor behavior challenges wealth managers on a daily basis. We designed an experiment to seek out remedies in the setting of a university student–managed investment fund with novice undergraduate student investors. Over 3 years, more than 400 investment decisions were made. More than 220 decisions would not have been made were it not for our suggested remedy. Our sample includes more than 100 individual investors and a portfolio size of $1 million in real funds. Our solution for hesitancy is offering cash covered puts for investment purchases and covered calls for investment liquidations. We find that having a third option of buying or selling with covered options largely alleviates decision-making anxiety for our sample investors. As a bonus, this option trading activity made the portfolio significantly more profitable during this 3-year experimental period from 2017 through 2019.

Suggested Citation

Travis, Denver and Dicle, Mehmet F., Reluctant Investors: A Behavioral Experiment. The Journal of Wealth Management, Fall 2022, 25 (2) 115-131., Available at SSRN: https://ssrn.com/abstract=4170975

Denver Travis (Contact Author)

Loyola University New Orleans - College of Business

6363 St. Charles Avenue
New Orleans, LA 70118
United States

Mehmet F. Dicle

Loyola University New Orleans - Joseph A. Butt, S.J. College of Business ( email )

6363 St. Charles Avenue
New Orleans, LA 70118
United States

HOME PAGE: http://researchata.com

Do you have negative results from your research you’d like to share?

Paper statistics

Abstract Views
165
PlumX Metrics