As part of the series of the „Finance Research Seminar“, VGSF welcomes Neil Pearson from Gies College of Business to present his research paper.
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Paper
Risk-Taking Over Very Long Horizons: Investors’ Lifetime Returns and Exit from the Stock Market
We use Chinese brokerage account records over a long period to show that the relation between stock market exit and an investor’s lifetime return resembles an inverted V, with a sharp peak at zero. This pattern, and additional results, are consistent with cumulative prospect theory (CPT), and inconsistent with learning. Thus, CPT appears to explain important features of risk taking over long horizons, involving many trades. The relation between exit and lifetime return implies that the investors who remain in the market tend to have worse lifetime performance than those who exit, resulting in a market dominated by poorly-performing investors.
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