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The repurchase behavior of individual investors : an experimental investigation

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  • Weber, Martin
  • Welfens, Frank

Abstract

We analyze two recently documented follow-on purchase and repurchase patterns experimentally: Individual investors’ preference for purchasing additional shares of a stock that decreased rather than increased in value succeeding an initial purchase (pattern 1) and investors’ tendency for purchasing stocks that they previously sold at a higher price (pattern 2). Similar to the field data study by Odean, Strahilevitz, and Barber (2004), subjects in our experiment are about 2.5 to 3 times as likely to purchase units of a single fictitious good if the price of the good declined following a purchase or sale in the previous period. As an assignment of choices clearly reduces the effect, we ar-gue that investors are involved in counterfactual thinking: They refrain from purchasing additional shares or repurchasing shares at a higher price because doing so means admitting to their ex post wrong decision.

Suggested Citation

  • Weber, Martin & Welfens, Frank, 2007. "The repurchase behavior of individual investors : an experimental investigation," Papers 07-44, Sonderforschungsbreich 504.
    • Handle: RePEc:mnh:spaper:2524
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    More about this item

    JEL classification:

    • C91 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Individual Behavior
    • D14 - Microeconomics - - Household Behavior - - - Household Saving; Personal Finance
    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions

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