When are Graduate Business Students a Reasonable Proxy for Nonprofessional Investors?

50 Pages Posted: 21 Jun 2004

See all articles by W. Brooke Elliott

W. Brooke Elliott

University of Illinois at Urbana-Champaign

Frank D. Hodge

University of Washington - Michael G. Foster School of Business

Maarten Pronk

Erasmus University Rotterdam (EUR) - Erasmus School of Economics (ESE)

S. Jane (Kennedy) Jollineau

Chapman University - The George L. Argyros School of Business & Economics; University of Washington - Foster School of Business

Date Written: June 2004

Abstract

We investigate a key assumption underlying much of the experimental research in financial accounting that graduate business students are a reasonable proxy for nonprofessional investors. We investigate this assumption using two settings: (a) an experimental setting from a recent paper that relies on this assumption, and (b) by using a proprietary dataset from a publicly traded company's investor relations website. Our analysis reveals that, on average, early MBA students (i.e., students beginning the "core" MBA classes) acquire information as well as nonprofessional investors but that they are unable to integrate that information with other information when making investment-related judgments and decisions. In contrast, select MBA students (i.e., students who have completed the core and elected to take a financial analysis course) acquire and integrate information as well as nonprofessional investors when making investment-related judgments and decisions. Further tests reveal that early MBA students with significant work experience (e.g., greater than five years) perform better than less experienced, early MBA students and not significantly different from nonprofessional investors. Our results suggest that using graduate business students as a proxy for nonprofessional investors is a valid methodological choice, provided researchers give careful consideration to aligning their tasks with the appropriate level of education and/or work experience.

Keywords: Investor sophistication, behavioral research in accounting, stock options

JEL Classification: M41, C91

Suggested Citation

Elliott, W. Brooke and Hodge, Frank Douglas and Pronk, Maarten and Kennedy Jollineau, S. Jane, When are Graduate Business Students a Reasonable Proxy for Nonprofessional Investors? (June 2004). Available at SSRN: https://ssrn.com/abstract=556980 or http://dx.doi.org/10.2139/ssrn.556980

W. Brooke Elliott

University of Illinois at Urbana-Champaign ( email )

1206 South Sixth Street
Champaign, IL 61820
United States

Frank Douglas Hodge (Contact Author)

University of Washington - Michael G. Foster School of Business ( email )

Paccar Hall 540, Box 353200
Seattle, WA 98195-3200
United States
206-616-8598 (Phone)
206-685-9392 (Fax)

Maarten Pronk

Erasmus University Rotterdam (EUR) - Erasmus School of Economics (ESE) ( email )

P.O. Box 1738
3000 DR Rotterdam, NL 3062 PA
Netherlands

S. Jane Kennedy Jollineau

Chapman University - The George L. Argyros School of Business & Economics ( email )

333 N. Glassell
Orange, CA 92866
United States
206.227.7868 (Phone)

HOME PAGE: http://www.chapman.edu/our-faculty/jane-jollineau

University of Washington - Foster School of Business ( email )

Seattle, WA 98195-3226
United States
206.227.7868 (Phone)

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