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Why inexperienced investors do not learn: They do not know their past portfolio performance

Author

Listed:
  • Glaser, Markus

    (Sonderforschungsbereich 504)

  • Weber, Martin

    (Lehrstuhl für ABWL, Finanzwirtschaft, insb. Bankbetriebslehre)

Abstract

Recently, researchers have gone a step further from just documenting biases of individual investors. More and more studies analyze how experience affects decisions and whether biases are eliminated by trading experience and learning. A necessary condition to learn is that investors actually know what happened in the past and that the views of the past are not biased. We contribute to the above mentioned literature by showing why learning and experience go hand in hand. Inexperienced investors are not able to give a reasonable self-assessment of their own past realized stock portfolio performance which impedes investors' learning ability. Based on the answers of 215 online broker investors to an Internet questionnaire, we analyze whether investors are able to correctly estimate their own realized stock portfolio performance. We show that investors are hardly able to give a correct estimate of their own past realized stock portfolio performance and that experienced investors are better able to do so. In general, we can conclude that we find evidence that investor experience lessens the simple mathematical error of estimating portfolio returns, but seems not to influence their “behavioral” mistakes pertaining to how good (in absolute sense or relative to other investors) they are.

Suggested Citation

  • Glaser, Markus & Weber, Martin, 2007. "Why inexperienced investors do not learn: They do not know their past portfolio performance," Sonderforschungsbereich 504 Publications 07-70, Sonderforschungsbereich 504, Universität Mannheim;Sonderforschungsbereich 504, University of Mannheim.
    • Handle: RePEc:xrs:sfbmaa:07-70
    Note: Financial support from the Deutsche Forschungsgemeinschaft, SFB 504, at the University of Mannheim, is gratefully acknowledged.
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    Cited by:

    1. Ralf Gerhardt & Steffen Meyer, 2013. "The effect of personal portfolio reporting on private investors," Financial Markets and Portfolio Management, Springer;Swiss Society for Financial Market Research, vol. 27(3), pages 257-273, September.
    2. D’Hondt, Catherine & De Winne, Rudy & Merli, Maxime, 2021. "Do retail investors bite off more than they can chew? A close look at their return objectives," Journal of Economic Behavior & Organization, Elsevier, vol. 188(C), pages 879-902.
    3. Nofsinger, John R., 2012. "Household behavior and boom/bust cycles," Journal of Financial Stability, Elsevier, vol. 8(3), pages 161-173.
    4. Subina Syal & Nidhi Walia, 2017. "Investment Decisions of Women in Punjab towards Different Investment Avenues – A Factor Analysis Approach," Indian Journal of Commerce and Management Studies, Educational Research Multimedia & Publications,India, vol. 8(2), pages 115-120, May.
    5. E. M. Cervellati & P. Pattitoni & M. Savioli, 2016. "Cognitive Biases and Entrepreneurial Under-Diversification," Working Papers wp1076, Dipartimento Scienze Economiche, Universita' di Bologna.
    6. Hoffmann, Arvid O.I. & Post, Thomas & Pennings, Joost M.E., 2013. "Individual investor perceptions and behavior during the financial crisis," Journal of Banking & Finance, Elsevier, vol. 37(1), pages 60-74.
    7. Xu, Feng & Wan, Difang, 2015. "The impacts of institutional and individual investors on the price discovery in stock index futures market: Evidence from China," Finance Research Letters, Elsevier, vol. 15(C), pages 221-231.
    8. Meyer, Steffen & Urban, Linda & Ahlswede, Sophie, 2015. "Does a personalized feedback on investment success mitigate investment mistakes of private investors? Answers from large natural field experiment," VfS Annual Conference 2015 (Muenster): Economic Development - Theory and Policy 112988, Verein für Socialpolitik / German Economic Association.
    9. Purnomo M. Antara & Rosidah Musa & Faridah Hassan, 2015. "Theorising attitude towards Islamic financing adoption in an integrative model of behavioural prediction: A proposed conceptual framework," Journal of Administrative and Business Studies, Professor Dr. Usman Raja, vol. 1(1), pages 35-41.
    10. Oliver Gloede & Lukas Menkhoff, 2014. "Financial Professionals' Overconfidence: Is It Experience, Function, or Attitude?," European Financial Management, European Financial Management Association, vol. 20(2), pages 236-269, March.
    11. TOMA, Filip-Mihai & CEPOI, Cosmin-Octavian & NEGREA, Bogdan, 2021. "Does it payoff to be overconfident? Evidence from an emerging market – a quantile regression approach," Finance Research Letters, Elsevier, vol. 38(C).
    12. Bernile, Gennaro & Bonaparte, Yosef & Delikouras, Stefanos, 2025. "Stock market experience and investor overconfidence: Do investors learn to be overconfident?," Journal of Banking & Finance, Elsevier, vol. 174(C).
    13. Semra TAŞPUNAR ALTUNTAŞ, 2019. "İslami Finansal Okuryazarlık ve Helal Okuryazarlık İlişkisi," Istanbul Management Journal, Istanbul University Business School, vol. 0(86), pages 57-73, June.
    14. Meyer, Steffen & Urban, Linda & Ahlswede, Sophie, 2016. "Does feedback on personal investment success help?," SAFE Working Paper Series 157, Leibniz Institute for Financial Research SAFE.
    15. Markus Arnold & Florian Elsinger & Frederick W. Rankin, 2021. "The Unintended Consequences of Headquarters’ Involvement in Decentralized Transfer Price Negotiations: Experimental Evidence," Management Science, INFORMS, vol. 67(12), pages 7912-7931, December.
    16. Eichfelder, Sebastian & Schorn, Michael, 2009. "Tax compliance costs: a business administration perspective," Discussion Papers 2009/3, Free University Berlin, School of Business & Economics.

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