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 uctuations in trading.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: CEBI Working Paper Series ; No. 08/20

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 ; Pirschl, Jenny ; Wohlfart, Johannes
• Event: Veröffentlichung
• (who): University of Copenhagen, Department of Economics, Center for Economic Behavior and Inequality (CEBI)
• (where): Copenhagen
• (when): 2020

Further information

• Handle: http://hdl.handle.net/10419/258922
• Last update: 10.03.2025, 11:42 AM CET