What Really Matters When Buying and Selling Stocks?

Financial Education, 8(1), 35 - 61

43 Pages Posted: 15 Apr 2007 Last revised: 26 Jul 2012

See all articles by James Doran

James Doran

University of New South Wales

Colbrin Wright

Brigham Young University

Date Written: April 13, 2007

Abstract

This paper asks the simple question of what matters to individuals when they buy and sell stocks. To answer this question, we surveyed all finance professors at accredited, four-year universities and colleges in the US to assess our profession's collective opinion on the matter. Our sample of 642 useable responses indicates that over two-thirds of the sample are passive investors, and not because they don't have the time to invest. The responses for all investors indicates that the traditional valuation techniques (specifically, the dividend-based valuation models) and the traditional asset-pricing models (namely the CAPM, APT, and Fama and French and Carhart models) are all unimportant in the decision of whether to buy or sell a specific stock. Instead, finance professors, particularly finance professors who trade stocks at least monthly and who admit they are trying to "beat the market" with their investment dollars, believe that firm characteristics (especially, a firm's PE ratio and market capitalization), along with momentum related information (a firm's returns over the past six months and year and a firms' 52-week low and high) are most important when considering a stock sale and purchase. We also show that finance professors have less investing experience than one might expect, especially in the areas of margin trading, short selling, and derivatives.

Keywords: Portfolio Choice, Investment Decisions, Stock Returns

JEL Classification: G11, G14

Suggested Citation

Doran, James and Wright, Colbrin, What Really Matters When Buying and Selling Stocks? (April 13, 2007). Financial Education, 8(1), 35 - 61. Available at SSRN: https://ssrn.com/abstract=980291 or http://dx.doi.org/10.2139/ssrn.980291

James Doran (Contact Author)

University of New South Wales ( email )

College Rd
Sydney, NSW 2052
Australia

Colbrin Wright

Brigham Young University ( email )

United States
(801) 422 1224 (Phone)

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