Primacy in Stock Market Participation:The Effect of Initial Returns on Market Re-Entry Decisions

Abstract

We examine whether initial returns influence investors’ decisions to return to the stock market following withdrawal. Using a survival analysis technique to estimate Finnish retail investors’ likelihood of stock market re-entry reveals that investors who experience lower initial returns are less likely to return, even after controlling for returns in the last month and average monthly returns for the duration of investing. This primacy effect is robust to accounting for endogeneity in investors’ exit decisions, and other behavioural biases such as recency and saliency of investment experience. Individual investors appear to be subject to primacy bias and tend to put a significant weight on initial experiences in re-entry decisions.

Publication DOI: https://doi.org/10.1080/1351847X.2018.1459764
Divisions: College of Business and Social Sciences > Aston Business School
College of Business and Social Sciences > Aston Business School > Accounting
Additional Information: This is an Accepted Manuscript of an article published by Taylor & Francis Group in The European Journal of Finance on 10 April 2018, available online at: http://www.tandfonline.com/10.1080/1351847X.2018.1459764
Uncontrolled Keywords: Individual investor behaviour,experiential learning,primacy effect,stock market participation,stock market re-entry decision,Economics, Econometrics and Finance (miscellaneous)
Publication ISSN: 1466-4364
Last Modified: 30 Sep 2024 11:31
Date Deposited: 13 Apr 2018 12:40
Full Text Link:
Related URLs: https://www.tan ... 7X.2018.1459764 (Publisher URL)
http://www.scop ... tnerID=8YFLogxK (Scopus URL)
PURE Output Type: Article
Published Date: 2019-07-03
Published Online Date: 2018-04-11
Accepted Date: 2018-03-26
Submitted Date: 2017-08-22
Authors: Arikan, Ozlem (ORCID Profile 0000-0002-1916-2013)
Gozluklu, Arie
Kim, Gi
Sakaguchi, Hiroaki

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