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Title: Estimation and statistical modelling of financial and economic decisions from trading and survey data
Author: Burro, Giovanni
ISNI:       0000 0004 9357 9807
Awarding Body: University of Warwick
Current Institution: University of Warwick
Date of Award: 2020
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We investigate the behaviour of individual financial investors and individual preferences about intertemporal choice. First, we estimate how the propensity to realise a stock in the gain domain changes, as the distance in price and the distance in time from the maximum price which realised in an investment episode change. We fit a Proportional Hazard model to estimate the propensity to sell a stock in a specific investment and find that the propensity to sell is highest at a short distance in time and high distance in price from the past maximum. We relate our results to theoretical models of Regret Theory in dynamic decisions. Second, we estimate the disposition effect from a wide framing perspective, for a sample of frequent traders. The disposition effect is the tendency of investors to realise gains at a higher rate than losses. We estimate it for several bank account compositions, using fixed effects models. We find that the disposition effect is higher when the percentage of stocks trading at a gain in a bank account is lower and it is lower when the percentage of gains is higher. We attribute the effect to a combination of anticipated regret and the preference that investors have for realising more than a stock on a given trading day, which we document. Third, we estimate the disposition effect assuming that investors define gains and losses, at a psychological level, with respect to an alternative reference point, different from the purchase price. We test three alternative rules and find that adopting the average of the realisations of the last five trading days prices (Recent rule) leads to the biggest departure of the disposition effect from the original estimate. Assuming that investors adopt the Recent rule to define their reference point leads to a much lower disposition effect, in particular if investors trade more and their trades are shorter. Fourth, we estimate intertemporal discounting in a sample of more than 50,000 individuals from 65 countries. We find that young individuals discount at the same rate, independently from income. Patience declines with age, at a faster rate, the lower the individuals rank in the income distribution. High income individuals discount at the same rate, independently of age. We develop an index of patience, defined at the country level, and find a strong correlation of it with other indices proposed in the literature and with country characteristics associated to economic development.
Supervisor: Not available Sponsor: Leverhulme Trust
Qualification Name: Thesis (Ph.D.) Qualification Level: Doctoral
EThOS ID:  DOI: Not available
Keywords: BF Psychology ; HB Economic Theory ; HG Finance ; QA Mathematics