The Journal of Finance publishes leading research across all the major fields of finance. It is one of the most widely cited journals in academic finance, and in all of economics. Each of the six issues per year reaches over 8,000 academics, finance professionals, libraries, and government and financial institutions around the world. The journal is the official publication of The American Finance Association, the premier academic organization devoted to the study and promotion of knowledge about financial economics.
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Do Investors Overweight Personal Experience? Evidence from IPO Subscriptions
Published: 11/11/2008 | DOI: 10.1111/j.1540-6261.2008.01411.x
MARKKU KAUSTIA, SAMULI KNÜPFER
We find a strong positive link between past IPO returns and future subscriptions at the investor level in Finland. Our setting allows us to trace this effect to the returns personally experienced by investors; the effect is not explained by patterns related to the IPO cycle, or wealth effects. This behavior is consistent with reinforcement learning, where personally experienced outcomes are overweighted compared to rational Bayesian learning. The results provide a microfoundation for the argument that investor sentiment drives IPO demand. The paper also contributes to understanding how popular investment styles develop, and has implications for the marketing of financial products.
Formative Experiences and Portfolio Choice: Evidence from the Finnish Great Depression
Published: 09/20/2016 | DOI: 10.1111/jofi.12469
SAMULI KNÜPFER, ELIAS RANTAPUSKA, MATTI SARVIMÄKI
We trace the impact of formative experiences on portfolio choice. Plausibly exogenous variation in workers’ exposure to a depression allows us to identify the effects and a new estimation approach makes addressing wealth and income effects possible. We find that adversely affected workers are less likely to invest in risky assets. This result is robust to a number of control variables and it holds for individuals whose income, employment, and wealth were unaffected. The effects travel through social networks: individuals whose neighbors and family members experienced adverse circumstances also avoid risky investments.