Taring all investors with the same brush? Evidence for heterogeneity in individual preferences from a maximum likelihood approach

Andreas Hackethal, Sven Thorsten Jakusch and Steffen Meyer

No 147, SAFE Working Paper Series from Leibniz Institute for Financial Research SAFE

Abstract: Microeconomic modeling of investors behavior in financial markets and its results crucially depends on assumptions about the mathematical shape of the underlying preference functions as well as their parameterizations. With the purpose to shed some light on the question, which preferences towards risky financial outcomes prevail in stock markets, we adopted and applied a maximum likelihood approach from the field of experimental economics on a randomly selected dataset of 656 private investors of a large German discount brokerage firm. According to our analysis we find evidence that the majority of these clients follow trading pattern in accordance with Prospect Theory (Kahneman and Tversky (1979)). We also find that observable sociodemographic and personal characteristics such as gender or age don't seem to correlate with specific preference types. With respect to the overall impact of preferences on trading behavior, we find a moderate impact of preferences on trading decisions of individual investors. A classification of investors according to various utility types reveals that the strength of the impact of preferences on an investors' rading behavior is not connected to most personal characteristics, but seems to be related to round-trip length.

Keywords: Utility Theory; Maximum Likelihood; Individual Investors (search for similar items in EconPapers)
JEL-codes: C35 C51 C52 G02 G11 (search for similar items in EconPapers)
Date: 2016
New Economics Papers: this item is included in nep-cbe, nep-exp and nep-upt
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:safewp:147

DOI: 10.2139/ssrn.2845866

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