Featured Research

from universities, journals, and other organizations

Small investors often make poor investments

Date:
May 6, 2014
Source:
Université du Luxembourg
Summary:
Inexperienced investors often fail to make wise investments because they are too influenced by psychological and sociological “biases” rather than economic fundamentals. So called “mum and dad investors” mistakenly think they are doing the right thing by selecting a wide range of shares from famous firms and by following media tips.

Inexperienced investors often fail to make wise investments because they are too influenced by psychological and sociological "biases" rather than economic fundamentals. So called "mum and dad investors" mistakenly think they are doing the right thing by selecting a wide range of shares from famous firms and by following media tips. "However, unsophisticated investors tend to be too influenced by short-term events to assemble a share portfolio which will maximise returns," commented Dr Annica Rose, a post-doctoral researcher at the Luxembourg School of Finance, the Department of Finance at the University of Luxembourg.

Related Articles


Dr Rose divided stocks on the Helsinki Stock Exchange into different groups according to their popularity for smaller investors. She then tracked their performance over the next three years. In the initial three-month period, popular "mum and dad" stocks often had better returns than the less popular ones. However, after six months this switched around, with the less traded stocks performing worse and continued to do so. These findings have been published in the leading academic journal Review of Finance*.

"If a big company releases a new product or is running an impressive advertising campaign, this tends to sway the retail investor," noted Dr Rose. "Alternatively, they may see a stock's price rising and decide to jump on." However, often in just a few weeks the fundamentals of supply and demand assert themselves and the price will revert.

Behavioural economists have highlighted a range of biases by small investors playing the market. For example, it is very common for "mum and dad" to sell profitable stocks too early, missing out on large long-term gains. Conversely, people are often unwilling to cut losses on badly performing investments. Dr Rose's contribution is further evidence to suggest that when making major, long-term investments it pays to do some cool-headed research or rely on the professionals.


Story Source:

The above story is based on materials provided by Université du Luxembourg. Note: Materials may be edited for content and length.


Journal Reference:

  1. H. Leung, A. Rose, P. J. Westerholm. Systematic Trading Behavior and the Cross-Section of Stock Returns on the OMXH. Review of Finance, 2013; DOI: 10.1093/rof/rft045

Cite This Page:

Université du Luxembourg. "Small investors often make poor investments." ScienceDaily. ScienceDaily, 6 May 2014. <www.sciencedaily.com/releases/2014/05/140506094727.htm>.
Université du Luxembourg. (2014, May 6). Small investors often make poor investments. ScienceDaily. Retrieved December 20, 2014 from www.sciencedaily.com/releases/2014/05/140506094727.htm
Université du Luxembourg. "Small investors often make poor investments." ScienceDaily. www.sciencedaily.com/releases/2014/05/140506094727.htm (accessed December 20, 2014).

Share This


More From ScienceDaily



More Mind & Brain News

Saturday, December 20, 2014

Featured Research

from universities, journals, and other organizations


Featured Videos

from AP, Reuters, AFP, and other news services

Researchers Test Colombian Village With High Alzheimer's Rates

Researchers Test Colombian Village With High Alzheimer's Rates

AFP (Dec. 19, 2014) — In Yarumal, a village in N. Colombia, Alzheimer's has ravaged a disproportionately large number of families. A genetic "curse" that may pave the way for research on how to treat the disease that claims a new victim every four seconds. Duration: 02:42 Video provided by AFP
Powered by NewsLook.com
Double-Amputee Becomes First To Move Two Prosthetic Arms With His Mind

Double-Amputee Becomes First To Move Two Prosthetic Arms With His Mind

Buzz60 (Dec. 19, 2014) — A double-amputee makes history by becoming the first person to wear and operate two prosthetic arms using only his mind. Jen Markham has the story. Video provided by Buzz60
Powered by NewsLook.com
Prenatal Exposure To Pollution Might Increase Autism Risk

Prenatal Exposure To Pollution Might Increase Autism Risk

Newsy (Dec. 18, 2014) — Harvard researchers found children whose mothers were exposed to high pollution levels in the third trimester were twice as likely to develop autism. Video provided by Newsy
Powered by NewsLook.com
Yoga Could Be As Beneficial For The Heart As Walking, Biking

Yoga Could Be As Beneficial For The Heart As Walking, Biking

Newsy (Dec. 17, 2014) — Yoga can help your weight, blood pressure, cholesterol and heart just as much as biking and walking does, a new study suggests. Video provided by Newsy
Powered by NewsLook.com

Search ScienceDaily

Number of stories in archives: 140,361

Find with keyword(s):
 
Enter a keyword or phrase to search ScienceDaily for related topics and research stories.

Save/Print:
Share:  

Breaking News:

Strange & Offbeat Stories

 

Health & Medicine

Mind & Brain

Living & Well

In Other News

... from NewsDaily.com

Science News

Health News

Environment News

Technology News



Save/Print:
Share:  

Free Subscriptions


Get the latest science news with ScienceDaily's free email newsletters, updated daily and weekly. Or view hourly updated newsfeeds in your RSS reader:

Get Social & Mobile


Keep up to date with the latest news from ScienceDaily via social networks and mobile apps:

Have Feedback?


Tell us what you think of ScienceDaily -- we welcome both positive and negative comments. Have any problems using the site? Questions?
Mobile iPhone Android Web
Follow Facebook Twitter Google+
Subscribe RSS Feeds Email Newsletters
Latest Headlines Health & Medicine Mind & Brain Space & Time Matter & Energy Computers & Math Plants & Animals Earth & Climate Fossils & Ruins