The importance of price paths. HOW HISTORICAL PRICE PATHS CAN INFLUENCE INVESTMENT DECISIONs
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2019-08-12
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en
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Abstract
We show that investor buying decisions are significantly influenced by the shape of historical price paths. By conducting an experimental survey, we find that the shape of a price path can influence investment behaviour. Investors are willing to invest most when the price path goes down first and up later and least when the price path goes up first and down later. We furthermore show that this effect is stronger when the final return is negative. Our results provide important insights that can be applied in the investment industry.
Keywords: Historical price paths, willingness to invest, investment decisions, reference points, recency bias, cumulative prospect theory, confirmation bias, behavioural finance
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Faculteit der Managementwetenschappen