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Do financial advisors exhibit myopic loss aversion?

  • Kristoffer Eriksen


  • Ola Kvaløy


Myopic loss aversion (MLA) has been proposed as an explanation for the equity premium puzzle, and a number of experiments on students indicate that people do exhibit MLA. However, many people do not rely on their own judgment when making investment decisions, but obtain help from financial investment advisors on how to allocate their wealth. The preferences and choices of financial advisors are thus important for understanding investment behavior. In this paper we make use of 50 professional financial advisors to examine whether they exhibit behavior consistent with MLA. Indeed, we find that they behave consistently with MLA to a larger extent than students. Copyright Swiss Society for Financial Market Research 2010

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Article provided by Springer & Swiss Society for Financial Market Research in its journal Financial Markets and Portfolio Management.

Volume (Year): 24 (2010)
Issue (Month): 2 (June)
Pages: 159-170

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Handle: RePEc:kap:fmktpm:v:24:y:2010:i:2:p:159-170
DOI: 10.1007/s11408-009-0124-z
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  1. John A. List, 2004. "Neoclassical Theory Versus Prospect Theory: Evidence from the Marketplace," Econometrica, Econometric Society, vol. 72(2), pages 615-625, 03.
  2. Gerlinde Fellner & Matthias Sutter, . "Causes, consequences, and cures of myopic loss aversion - An experimental investigation," Working Papers 2008-01, Faculty of Economics and Statistics, University of Innsbruck.
  3. John A. List, 2002. "Preference Reversals of a Different Kind: The "More Is Less" Phenomenon," American Economic Review, American Economic Association, vol. 92(5), pages 1636-1643, December.
  4. Rabin, Matthew, 2000. "Risk Aversion and Expected-Utility Theory: A Calibration Theorem," Department of Economics, Working Paper Series qt731230f8, Department of Economics, Institute for Business and Economic Research, UC Berkeley.
  5. Haigh, Michael S. & List, John A., 2002. "Do Professional Traders Exhibit Myopic Loss Aversion? An Experimental Analysis," Working Papers 28554, University of Maryland, Department of Agricultural and Resource Economics.
  6. Markowitz, Harry M., 1990. "Foundations of Portfolio Theory," Nobel Prize in Economics documents 1990-1, Nobel Prize Committee.
  7. Alexander, Gordon J. & Jones, Jonathan D. & Nigro, Peter J., 1998. "Mutual fund shareholders: characteristics, investor knowledge, and sources of information," Financial Services Review, Elsevier, vol. 7(4), pages 301-316.
  8. Jeremy J. Siegel & Richard H. Thaler, 1997. "Anomalies: The Equity Premium Puzzle," Journal of Economic Perspectives, American Economic Association, vol. 11(1), pages 191-200, Winter.
  9. Tversky, Amos & Kahneman, Daniel, 1992. "Advances in Prospect Theory: Cumulative Representation of Uncertainty," Journal of Risk and Uncertainty, Springer, vol. 5(4), pages 297-323, October.
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