Adaptive Sovereign Bond Investment Strategies During Financial Crises: An Experiment with Financial Professionals

Michal Paserman

Chapter 5 in Behavioral Finance:The Coming of Age, 2019, pp 109-164 from World Scientific Publishing Co. Pte. Ltd.

Abstract: I employ experimental methods to study the way in which financial professionals adapt investment decision-making in sovereign bonds of emerging markets (EMs) during financial crises. I find that when the complexity of the environment increases, investors reduce information processing and shift to strategies in which they systematically focus on a selective subset of bond aspects and neglect information that is considered relevant during “normal” times. Risk-related indicators are then assigned more weight, shifting it away from return-related aspects of the bond. I propose that systematically neglecting a specific part of relevant data under pressure and focusing on another, rather than merely narrowing a search to a random subset of information, could result in a bias. Then, EMs that are perceived as having weaknesses in the aspects on which investors anchor might be more prone to bond sell-off.A wide host of individual demographic and professional characteristics are found to moderate both information processing in “normal” times and the way in which investors adapt it under pressure in terms of both quantity and type.

Keywords: Behavioral Economics; Behavioral Finance; Behavioral Macro-Finance; Decision Making; Disposition Effect; Financial Crisis; Financial Decision-Making; Financial Market Anomalies; Fintech; Gender Differences; Heuristics; Information Processing Style; International Contagion Market Design; Monetary Policy; Mood; Optimal Portfolio; Overreaction; Peer-to-Peer Lending; Political Economics; Time Pressure; Transparency (search for similar items in EconPapers)
JEL-codes: G30 G41 (search for similar items in EconPapers)
Date: 2019
References: Add references at CitEc
Citations:

Downloads: (external link)
https://www.worldscientific.com/doi/pdf/10.1142/9789813279469_0005 (application/pdf)
https://www.worldscientific.com/doi/abs/10.1142/9789813279469_0005 (text/html)
Ebook Access is available upon purchase.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:wsi:wschap:9789813279469_0005

Ordering information: This item can be ordered from

Access Statistics for this chapter

More chapters in World Scientific Book Chapters from World Scientific Publishing Co. Pte. Ltd.
Bibliographic data for series maintained by Tai Tone Lim ().