Non-Fungible Cash in the Stock Market

82 Pages Posted: 3 Oct 2022 Last revised: 21 Mar 2024

See all articles by Xindi He

Xindi He

Georgia Institute of Technology - Scheller College of Business

Date Written: September 28, 2022

Abstract

Investors perceive cash in savings accounts differently from cash circulated within brokerage accounts. This paper introduces a novel “temperature” framework for financial resources, categorizing the former as “cold cash” and the latter as “hot cash.” I find individual investors buy stocks more cautiously with colder cash. An experiment, where cash temperature is randomly assigned, shows the effect is causal. Building on the observational and experimental findings, I propose a portfolio choice model featuring preferences with temperature-dependent sensitivity to future gains and losses. The model explains my empirical findings and provides a cash-temperature perspective for other puzzles in the literature.

JEL Classification: G11, G12, G40, G41, D50

Suggested Citation

He, Xindi, Non-Fungible Cash in the Stock Market (September 28, 2022). Available at SSRN: https://ssrn.com/abstract=4211981 or http://dx.doi.org/10.2139/ssrn.4211981

Xindi He (Contact Author)

Georgia Institute of Technology - Scheller College of Business ( email )

800 West Peachtree St.
Atlanta, GA 30308
United States

HOME PAGE: http://https://www.hexindi.com/

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