Abstract
Examining myopic loss aversion (MLA [Benartzi, S., Thaler, R., 1995. Myopic loss aversion and the equity premium puzzle. Quarterly Journal of Economics 110, 73-92]) in real financial markets has several merits: in repeated situations investors may learn from each other, aggregate market prices may eliminate individual violations of expected utility, and individuals may decide differently in real situations than in laboratories. We utilize a special feature at the Tel Aviv stock exchange (TASE): occasional shifts of securities from daily to weekly trading. If investors' decisions are influenced by trading frequency manipulation, then returns should be predictably affected. MLA results in a negative relation between risk aversion and the length of the evaluation period. Thus, the longer the evaluation period is, the lower the expected return is. This intuition also suggests reduced sensitivity to economic events in longer evaluation periods. We find strong support for MLA in the marketplace when testing expected return, as well as return sensitivity.
| Original language | English |
|---|---|
| Pages (from-to) | 361-371 |
| Number of pages | 11 |
| Journal | Journal of Economic Behavior and Organization |
| Volume | 71 |
| Issue number | 2 |
| DOIs | |
| State | Published - Aug 2009 |
Keywords
- Equity premium
- Financial markets
- Loss aversion
- Mental accounting
- Myopic loss aversion
- Prospect theory
ASJC Scopus subject areas
- Economics and Econometrics
- Organizational Behavior and Human Resource Management