STREET DOGS

Conclusion to the research paper Stock Market Investors: Who Is More Rational, and Who Relies on Intuition? Published in the International Journal of Economics and Finance in May 2012. Our paper explores the effects of behavioural biases, namely, disposition effect, herd behaviour, availability heuristic, gambler’s fallacy and hot hand fallacy, on the mechanism of stock market decision making, and in particular, the individual differences in the degrees of these effects.

Employing an extensive online survey, we document that on average, active investors exhibit moderate degrees of behavioural biases. On the one hand, more experienced investors are less affected by behavioural patterns, but professional portfolio managers do not behave, in this respect, differently (more rationally) from nonprofessional investors. Professional investors appear to be significantly stronger influenced by the behavioural effects, than nonprofessional but experienced investors. We detect the major “rationalising” effect of experience is accumulated in the first years of investors’ market activity. Finally, female investors are more strongly affected by all the five behavioural biases.

Our results may have a number of interesting implications. First of all, in what concerns the rationality of market investment decisions, the time, as always, is the best healer. On the other hand, the “professionalism” of the portfolio managers, when viewed apart of the effect of experience, does not appear to change their way of decision-making. In addition, female investors are more likely to rely on simple and “intuitive” rules of decision-making. It follows that stock market analysts and other interested persons should probably find it easier to manipulate female investors’ views and decisions with respect to some particular financial assets and the stock market, in general.