Why Do Individuals Exhibit Investment Biases?

1
Why Do Individuals Exhibit Investment Biases?

• Authors
• Henrik Cronqvist
• Claremont McKenna College
• Stephan Siegel
• University of Washington

• Discussant
• Wen-I Chuang
• National Taiwan University

2
Research Questions

• Are people born with investment biases?
• Do people exhibit investment biases as a result
  of their upbringing, learning, or specific
  environmental experiences?

3
Main Results

• Individuals are born and genetically endowed with
  investment biases.
• Individuals are born with certain characteristics
  which affect both investment behaviors and
  behaviors in other domains.
• General education does not seem to significantly
  reduce genetic predisposition to investment
  biases.

4
Comment

• The paper addresses important and interesting
  issues.
• The results of this paper advance our
  understanding of the origins of investment biases
  from both perspectives of gene and environment.
• More importantly, the results of this paper
  provide a scientific basis on the research field
  of behavioral finance.
• The paper is already in a good shape.
• Any comments seem to be captious.

5
Comment

• In addition to socioeconomic characteristics
  (e.g., age, education, income, and wealth), some
  factors, which do not belong to genetic and
  environment effects, are not taken into account.
• For example, Graham et al. (2009) show that
  investors optimism toward the home and foreign
  markets affects their diversification and home
  bias.
• Chordia et al. (2007) show that past stock
  returns is associated with investors portfolio
  rebalancing needs.
• Is it possible to incorporate these factors into
  the model?

6
Comment

• The genetic and environment factors seem to have
  the permanent and temporary effects on investment
  biases, respectively.
• Is it possible to decompose the time-series
  variation in investment behaviors into the
  permanent and temporary components (e.g., Fama
  and French, 1988 Poterba and Summers, 1988
  Cochrane 1994)?

7
Comment

• Do the genetic factors also help to explain
  investors under- and overreaction to some
  specific events?
• A short-term momentum and a long-term reversal in
  stock returns
• Post-earnings-announcement drift
• Private versus public information

8
Comment

• What is the relation between the genetic factors
  and investor sentiment?