The trading response of individual investors to local bankruptcies

Arbeitspapier

We use data from a German online brokerage and a survey to show that retail investors sharply reduce risk-taking in response to nearby firm bankruptcies, which are not predictive of returns. The e.ects on trading are spatially highly concentrated, immediate and not persistent. They seem to operate through more pessimistic expected returns and increased risk aversion and do not reflect wealth e.ects or changes in background risks. Investors learn about bankruptcies through immediate coverage in local newspapers. Our findings suggest that non-informative local experiences that make downside risks of stock investment more salient contribute to idiosyncratic short-term fluctuations in trading.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: SAFE Working Paper ; No. 272

Classification and Topics

• Classification: Wirtschaft ; Household Saving; Personal Finance ; Portfolio Choice; Investment Decisions
• Subject: Individual investors ; risk-taking ; trading ; experiences

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Laudenbach, Christine ; Loos, Benjamin ; Pirschel, Jenny ; Wohlfart, Johannes
• Event: Veröffentlichung
• (who): Leibniz Institute for Financial Research SAFE
• (where): Frankfurt a. M.
• (when): 2020

Further information

• Handle: http://hdl.handle.net/10419/215432
• Last update: 10.03.2025, 11:43 AM CET