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Does Aggregated Returns Disclosure Increase Portfolio Risk-Taking?

  • John Beshears
  • James J. Choi
  • David Laibson
  • Brigitte C. Madrian

Many previous experiments have found that participants invest more in risky assets if they (i) see their returns less frequently, (ii) see portfolio-level returns (rather than individual asset-by-asset returns), or (iii) see long-horizon (rather than one-year) historical asset class return distributions. In contrast, we find that such information aggregation treatments do not increase equity allocations in an experiment where—unlike previous experiments—participants invest in real mutual funds over the course of one year. In a follow-up experiment, we start with the classic Gneezy and Potters (1997) experimental design and modify it step-by-step to move closer to the design of our first experiment. Using this identification strategy, we show that previously documented aggregation effects are not robust to (i) changes in the distribution of the risky asset’s returns and (ii) the introduction of a multi-day delay between the initial portfolio choice and the realization of returns.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 16868.

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Date of creation: Mar 2011
Date of revision:
Handle: RePEc:nbr:nberwo:16868
Note: AG AP
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  1. Gerlinde Fellner & Matthias Sutter, 2008. "Causes, consequences, and cures of myopic loss aversion - An experimental investigation," Jena Economic Research Papers 2008-004, Friedrich-Schiller-University Jena, Max-Planck-Institute of Economics.
  2. John List & Michael Haigh, 2005. "Do professional traders exhibit myopic loss aversion? An experimental analysis," Artefactual Field Experiments 00052, The Field Experiments Website.
  3. Glenn Harrison & John List, 2004. "Field experiments," Artefactual Field Experiments 00058, The Field Experiments Website.
  4. James J. Choi & David Laibson & Brigitte C. Madrian, 2007. "Mental Accounting in Portfolio Choice: Evidence from a Flypaper Effect," NBER Working Papers 13656, National Bureau of Economic Research, Inc.
  5. James J Choi & David Laibson & Brigitte C Madrian, 2008. "Why Does the Law of One Price Fail? An Experiment on Index Mutual Funds," Levine's Working Paper Archive 122247000000002014, David K. Levine.
  6. Sutter, Matthias, 2007. "Are teams prone to myopic loss aversion? An experimental study on individual versus team investment behavior," Economics Letters, Elsevier, vol. 97(2), pages 128-132, November.
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