Do investors hold that they know? Impact of familiarity bias on investor’s reluctance to realize losses: Experimental approach

Ekaterina Bulipopova, Vladislav Zhdanov and Artem Simonov

Finance Research Letters, 2014, vol. 11, issue 4, 463-469

Abstract: In this article we investigate the impact of familiarity bias on the individual investor’s reluctance to realize losses. Our experimental approach reveals a strong correlation between familiarity and disposition effect. We conducted 714 tests in which different respondents could sell stocks of two types – winners and losers. One group of respondents “owned” familiar assets and another group operated anonymous portfolios. The results of the experiment show that an individual investor’s tendency to ride losers too long is more than twice as high in the case of unfamiliar stocks as it is when assets are familiar to the holder.

Keywords: Behavioral finance; Familiarity bias; Disposition effect; Individual investor; Reluctance to realize losses (search for similar items in EconPapers)
JEL-codes: G (search for similar items in EconPapers)
Date: 2014
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:finlet:v:11:y:2014:i:4:p:463-469

DOI: 10.1016/j.frl.2014.10.003

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