The Trading Response of Individual Investors to Local Bankruptcies

Christine Laudenbach, Benjamin Loos, Jenny Pirschl and Johannes Wohlfart
Additional contact information
Christine Laudenbach: House of Finance, Goethe University, Frankfurt
Benjamin Loos: University of Technology, Sidney
Jenny Pirschl: Goethe University, Frankfurt
Johannes Wohlfart: CEBI, Department of Economics, University of Copenhagen

No 20-08, CEBI working paper series from University of Copenhagen. Department of Economics. The Center for Economic Behavior and Inequality (CEBI)

Abstract: We use data from a German online brokerage and a survey to show that retail investors sharply reduce risk-taking in response to nearby firm bankruptcies, which are not predictive of returns. The e ects on trading are spatially highly concentrated, immediate and not persistent. They seem to operate through more pessimistic expected returns and increased risk aversion and do not reflect wealth e ects or changes in background risks. Investors learn about bankruptcies through immediate coverage in local newspapers. Our findings suggest that non-informative local experiences that make downside risks of stock investment more salient contribute to idiosyncratic short-term uctuations in trading.

Keywords: Individual investors; risk-taking; trading; experiences (search for similar items in EconPapers)
JEL-codes: D14 G11 (search for similar items in EconPapers)
Pages: 88 pages
Date: 2020-03-23
New Economics Papers: this item is included in nep-gen and nep-rmg
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