Hostname: page-component-84b7d79bbc-g78kv Total loading time: 0 Render date: 2024-07-29T17:56:33.225Z Has data issue: false hasContentIssue false
  • English
  • Français

Do the Portfolios of Small Investors Reflect Positive Feedback Trading?

Published online by Cambridge University Press:  06 April 2009

Mary M. Bange
Get access Rights & Permissions [Opens in a new window]

Extract

This study examines the stock market forecasts and portfolio allocation decisions of small individual investors, based on survey data for 1987–1994. When investors are bullish, they increase their equity holdings; when investors are bearish, they decrease equity holdings. The surveyed investors are unable to time the stock market successfully. However, the shifts in their portfolios reflect past market movements and are consistent with positive feedback trading.

Type
Research Article
Information
Journal of Financial and Quantitative Analysis , Volume 35 , Issue 2 , June 2000 , pp. 239 - 255
Copyright
Copyright © School of Business Administration, University of Washington 2000

Access options

Get access to the full version of this content by using one of the access options below. (Log in options will check for institutional or personal access. Content may require purchase if you do not have access.)

Footnotes

*

Darla Moore School of Business, University of South Carolina, Columbia, SC, 29208. I thank numerous collagues for comments, including Tyrone Callahan, Werner De Bondt, Diane Del Guercio, Jim Granato, Todd Houge, Paul Malatesta (the editor), Mike Mazzeo, Tom Miller, Ted Moore, Greg Niehaus, Eric Schorvitz, and Mark Carhart (the referee). This was presented at the 1998 Financial Management meeting and the 1999 Western Finance Association meeting. I am grateful to Leigh Riddick, The Economist magazine, and Paul Garverick and Marie Zwick from the American Association of Individual Investors for providing data. The usual caveat applies.

References

Andreasen, P. B., and Kraus, S. J.. “Judgemental Extrapolation and the Salience of Change.” Journal of Forecasting, 9 (1990), 347–372.10.1002/for.3980090405CrossRefGoogle Scholar
Bange, M. M., and Miller, T. W. Jr, “Investment House Recommendations for ‘The Perfect Portfolio’.” Working Paper, Univ. of South Carolina and Univ. of Missouri (1999).Google Scholar
Brealey, R., and Myers, S.. Principles of corporate Finance, 2nd ed. New york, NY: McGraw-hill (1984).Google Scholar
Case, K. E., and Shiller, R. J.. “The Behavior of Home Buyers in Boom and Post Boom Markets.” Working Paper no. 2748, NBER (1988).CrossRefGoogle Scholar
De Bondt, W. F. M. “What Do Economists Know about the Stock Market?” Journal of Portfolio Management, 17 (1991), 84–91.Google Scholar
De Bondt, W. F. M. “Betting on Trends: Intuitive Forecasts of Financial Risk and Return.” Internatnational Journal of Forecasting. 9 (1993), 355–371.10.1016/0169-2070(93)90030-QCrossRefGoogle Scholar
De Bondt, W. F. M, and Thaler, R.. “Does the Stock Market Overreact? Journal of Finance, 30 (1985), 793–805.10.2307/2327804CrossRefGoogle Scholar
De Long, B; Shleifer, A.; Summers, L. H.; and Waldmann, R.. “Noise Trader Risk in Financial Markets.” Journal of Political Economy, 98 (1990), 703–738.10.1086/261703CrossRefGoogle Scholar
Elton, E. J; Gruber, M. J.; Das, S.; and Hlavka, M.. “Effciency with Costly Information; A Reinterpretation of Evidence from Managed Portfolios.” Review of Financial Studies, 6 (1993), 1–22.10.1093/rfs/6.1.1CrossRefGoogle Scholar
Engle, R. F; Hendry, D.; and Richard, J. F. “Exogeneity.” Econometrica, 51 (1983), 277–304.10.2307/1911990CrossRefGoogle Scholar
Fama, E. F, and French, K. R. “Business Conditions and Expected Returns on Stocks and Bonds.” Journal of Financial Economics, 25 (1989), 23–50.10.1016/0304-405X(89)90095-0CrossRefGoogle Scholar
Ferson, W. E., and Schadt, R. W.. “Measuring Fund Strategy and Performance in Changing Economic Conditions.” Journal of Finance, 51 (1996), 425–461.10.2307/2329367CrossRefGoogle Scholar
Godfrey, L “Testing against General Autoregressive and Moving Average Error Models When the Regressors Include Lagged Dependent Variables.” Econometrica, 46 (1978), 1293–1301.10.2307/1913829CrossRefGoogle Scholar
Graham, J. R., and Harvey, C. R.. “Market Timing Ability and Volatility Implied in Investment Newsletters' Asset Allocation Recommendations.” Journal of Financial Economics, 42 (1996), 397–421.10.1016/0304-405X(96)00878-1CrossRefGoogle Scholar
Harvey, C. R. “Time-varying Conditional Convictions Covariances in Tests of Asset Pricing Models”. Journal of Financial Economics, 24 (1989), 289–317.10.1016/0304-405X(89)90049-4CrossRefGoogle Scholar
Henriksson, R., and Merton, R. “On Market Timing and Investment Performance: II. Statiscal Products for Evaluating Forecasting Skills.” Journal of Business, 54 (1981), 513–534.10.1086/296144CrossRefGoogle Scholar
Ippolito, R. A “Consumer Reaction to Measures of poor Quality: Evidence from the Manual Fund Industry.” Journal of Law and Economics, 35 (1992), 45–70.10.1086/467244CrossRefGoogle Scholar
Jarque, C, and Bera, A. “Efficient Tests for Normality, Homoskedasticity, and Serial Independance of Regression Residuals.” Economic Letters, 6 (1980), 255–259.10.1016/0165-1765(80)90024-5CrossRefGoogle Scholar
Jensen, M. C. “The Performance of Mutual Funds in the period 1945–1964.”. Journal of Finance, 23 (1968), 389–416.10.2307/2325404Google Scholar
Kroll, Y; Levy, H.; and Rapoport, A.. “Empirical Tests of the Mean-Variance Model for Portfolio Selection.” Organization Behavior and Human Decision Processes, 42 (1988), 388–410.10.1016/0749-5978(88)90007-6CrossRefGoogle Scholar
Odean, T. “Are Investors Reluctant to Realize Their Losses?” Journal of Finance, 53 (1998), 1775–1798.10.1111/0022-1082.00072CrossRefGoogle Scholar
Ramsey, J “Tests for Specification Errors in Classical Linear Least-Squares Regression Analysis.” Journal of the Royal Statistical Society, Series B, 31 (1969), 350–371.Google Scholar
Shefrin, H., and Statman, M.. “The Dispostion to Sell Winners Too Early and Ride Losers Too Long: Theory and Evidence.” Journal of Finance, 40 (1985), 777–792.10.2307/2327802CrossRefGoogle Scholar
Shiller, R. J. “Portfolio Insurance and Other Investor Fashions as Factors in the 1987 Stock Market Crash.” NBER Macroeconomics Annual (1988), 287–296.CrossRefGoogle Scholar
Shiller, R. J. Market Volatility. Cambridge, MA: MIT Press (1989).Google Scholar
Sirri, E. R, and Tufano, P., “Costly Search and Mutual Fund Flows.” Journal of Finance, 53 (1998), 1589–1622.10.1111/0022-1082.00066CrossRefGoogle Scholar
Solt, M, and Statman, M.. “How Useful is the Sentiment Index?” Financial Analysts Journal, 44 (1988), 45–55.10.2469/faj.v44.n5.45CrossRefGoogle Scholar
Treynor, J, and Mazuy, K.. “Can Mutual Funds Outguess the Market?” Harvard Business Review, 44 (1966), 131–136.Google Scholar