umu.sePublications
Change search
Link to record
Permanent link

Direct link
BETA
Publications (9 of 9) Show all publications
Stålnacke, O. (2019). Individual investors’ information use, subjective expectations, and portfolio risk and return. European Journal of Finance, 25(15), 1351-1376
Open this publication in new window or tab >>Individual investors’ information use, subjective expectations, and portfolio risk and return
2019 (English)In: European Journal of Finance, ISSN 1351-847X, E-ISSN 1466-4364, Vol. 25, no 15, p. 1351-1376Article in journal (Refereed) Published
Abstract [en]

What information do individual investors use when making their financial decisions and how is it related to their stock market expectations, their confidence in these expectations, and the risk and return of their stock portfolios? I study these questions by combining survey data on the information usage among individual investors in Sweden with detailed registry data on their stock portfolios. I find that investors use filtered financial information (e.g. information packaged by a professional intermediary) more frequently than they use unfiltered financial information (e.g. information from annual reports and financial statements). Investors who frequently use filtered financial information are, however, more confident in their stock market expectations and take larger risks in their stock portfolios. Investors that instead use unfiltered financial information take lower portfolio risks and obtain higher portfolio returns. The findings in this paper thus suggest that investors can improve their financial decisions by using more unfiltered financial information rather than filtered financial information when they make their financial decisions.

Place, publisher, year, edition, pages
Routledge, 2019
Keywords
Financial information; individual investors; expectations; confidence; portfolio return
National Category
Business Administration Economics and Business
Identifiers
urn:nbn:se:umu:diva-158256 (URN)10.1080/1351847X.2019.1592769 (DOI)000474727900001 ()2-s2.0-85063096926 (Scopus ID)
Note

Originally included in thesis in manuscript form

Available from: 2019-04-17 Created: 2019-04-17 Last updated: 2020-01-17Bibliographically approved
Stålnacke, O. (2019). Individual investors’ sophistication and expectations of risk and return. Review of Behavioral Finance, 11(1), 2-22
Open this publication in new window or tab >>Individual investors’ sophistication and expectations of risk and return
2019 (English)In: Review of Behavioral Finance, ISSN 1940-5979, Vol. 11, no 1, p. 2-22Article in journal (Refereed) Published
Abstract [en]

Purpose – The purpose of this paper is to investigate the relationship between individual investors’ level of sophistication and their expectations of risk and return in the stock market.

Design/methodology/approach – The author combines survey and registry data on individual investors in Sweden to obtain 11 sophistication proxies that previous research has related to individuals’ financial decisions. These proxies are related to a survey measure regarding individual investors’ expectations of risk and return in an index fund using linear regressions.

Findings – The findings in this paper indicate that sophisticated investors have lower risk and higher return expectations that are closer to objective measures than those of less-sophisticated investors.

Originality/value – These results are important, since they enhance the understanding of the underlying mechanisms through which sophistication can influence financial decisions.

Place, publisher, year, edition, pages
Emerald Group Publishing Limited, 2019
National Category
Business Administration Economics and Business
Identifiers
urn:nbn:se:umu:diva-160879 (URN)10.1108/RBF-08-2017-0087 (DOI)000471171700001 ()
Available from: 2019-06-25 Created: 2019-06-25 Last updated: 2019-07-09Bibliographically approved
Stålnacke, O. (2018). Come Together: Trust, Sociability, and Individual Investors’ Financial Decisions. In: : . Paper presented at SABE/IAREP.
Open this publication in new window or tab >>Come Together: Trust, Sociability, and Individual Investors’ Financial Decisions
2018 (English)Conference paper, Oral presentation with published abstract (Refereed)
Abstract [en]

Previous studies have found trusting and social individuals to be more likely to participate in the stock market and to hold risky assets but why is this and does individuals that already participate in the stock market benefit from being more trusting and social? In this paper, I try to answer these questions by combining survey and administrative data for a random sample of individual investors in Sweden. More specifically, I test whether trust and sociability are associated with the financial information investors use when making their financial decisions and with the returns of their stock portfolios. I find that investors who trust information from media and financial advisors use these two sources of information more frequently when making their financial decisions compared to less trusting investors. Similarly, social investors use information from friends, family, and financial forums more frequently than less social investors. Finally, I find that trusting and social investors acquire higher simple and risk-adjusted stock-portfolio returns suggesting that an increase in both trust and sociability can help investors to make better financial decisions.

Keywords
trust, sociability, individual investors, portfolio return, financial decisions
National Category
Business Administration Economics
Identifiers
urn:nbn:se:umu:diva-150254 (URN)
Conference
SABE/IAREP
Available from: 2018-07-26 Created: 2018-07-26 Last updated: 2018-11-16
Hellström, J., Olsson, R. & Stålnacke, O. (2017). Evaluating measures of individual investors' expectations of risk and return. Review of Behavioral Finance, 9(3), 206-226
Open this publication in new window or tab >>Evaluating measures of individual investors' expectations of risk and return
2017 (English)In: Review of Behavioral Finance, ISSN 1940-5979, Vol. 9, no 3, p. 206-226Article in journal (Refereed) Published
Abstract [en]

Purpose

The purpose of this paper is to measure individual investors’ expectations of risk and return and to evaluate different expectation measures.

Design/methodology/approach

The authors measure individual investors’ expectations of risk and return regarding an index fund and two stocks using survey data on a random sample of individual investors in Sweden. The survey contains three different return and four different risk expectation measures. To evaluate the different expectation measures, three different evaluation perspectives are considered.

Findings

The risk expectations obtained from the different measures are positively correlated across respondents, but their average magnitudes differ considerably across measures. The return expectations are also positively correlated, and their magnitudes also differ, but to a lesser extent. Consequently, the same individual can express risk expectations that either underestimate or overestimate the forward risk, depending on the measure that is used. The variations in the expectations mainly relate to differences in the responses to the questions underlying the different measures, rather than to the methods used to obtain the expectations. The results from the evaluation of the measures indicate that the expectation measure proposed by Dominitz and Manski (2011) is the only measure for which it is possible to distinguish between individuals’ expectations, using all three of the evaluation perspectives.

Originality/value

This is, to the best of the authors’ knowledge, the first paper that evaluates different survey measures of individual investors’ expectations of risk and return.

Keywords
Expectations, Risk, Beliefs, Return, Subjective probability
National Category
Business Administration
Identifiers
urn:nbn:se:umu:diva-140746 (URN)10.1108/RBF-10-2016-0066 (DOI)000411490100001 ()
Available from: 2017-10-18 Created: 2017-10-18 Last updated: 2018-06-09Bibliographically approved
Stålnacke, O. (2017). What do you expect?: individual investors' subjective expectations, information usage, and social interactions in financial decision-making. (Doctoral dissertation). Umeå: Umeå universitet
Open this publication in new window or tab >>What do you expect?: individual investors' subjective expectations, information usage, and social interactions in financial decision-making
2017 (English)Doctoral thesis, comprehensive summary (Other academic)
Abstract [en]

This thesis consists of an introductory part and four self-contained papers related to individual investors’ subjective expectations and their financial behavior. 

Paper [I] analyzes multiple measures of individual investors’ expectations of risk and return using survey data on a random sample of individual investors in Sweden. The results indicate that, even though expectations from different measures are correlated, the magnitude of especially the risk expectations varies considerably between measures. The variations in the expectations mainly relate to differences in the responses to the questions underlying the different measures, rather than to the methods used to obtain them. Evaluation of the measures using three different comparisons indicates that the expectation measure proposed by Dominitz and Manski (2011) is the only measure for which it is possible to distinguish between individuals’ expectations using all of the considered comparisons.

Paper [II] addresses the relationship between sophistication and the expectations of individual investors with respect to risk and return. The findings show that sophisticated investors have lower (higher) risk (return) expectations that are closer to objective measures than less sophisticated investors. These results are important, since they enhance the understanding of the underlying mechanisms through which sophistication could influence individuals’ financial decisions.

Paper [III] provides new evidence for the sources of information individual investors’ use when making financial decisions and the relationship between how frequently investors use this information and their expectations of the risk and return in a stock market index, their confidence in these expectations, and their portfolio risk and return. The findings indicate that individual investors use different sources of filtered financial information (e.g., information packaged by a professional intermediary) more frequently than unfiltered financial information (e.g., information from annual reports and financial statements). However, an increase in the frequency with which investors use filtered financial information is positively related to their confidence in their stock-market expectations and to the risk in their stock portfolios. For investors who instead use unfiltered financial information more frequently than filtered financial information, the results indicate that they have more accurate stock-market expectations, lower portfolio risk, and higher portfolio return.

Paper [IV] links individual investors’ financial risk-taking to the behavior of peers within their community. By using detailed data at the individual level, it is found that the risk-taking among peers affects individuals’ choice of portfolio risk. The results hold for the full sample of individuals concerning their choice of the overall proportion of risky assets and stock market participants’ choice of total and systematic stock-portfolio risk. Overall, the results stress that interaction with peers is an important channel through which individual risk-taking is affected.

Place, publisher, year, edition, pages
Umeå: Umeå universitet, 2017. p. 75
Series
Studier i företagsekonomi. Serie B, ISSN 0346-8291 ; 96
Keywords
Behavioral finance, Beliefs, Confidence, Expectations, Financial information, Financial risk-taking, Household finance, Individual investors, Panel data, Portfolio choice, Portfolio return, Return, Risk, Social interaction, Sophistication, Stock market, Subjective probability, Survey research
National Category
Business Administration
Research subject
Business Studies
Identifiers
urn:nbn:se:umu:diva-134456 (URN)978-91-7601-726-5 (ISBN)
Public defence
2017-06-02, Hörsal C, Samhällsvetarhuset, Umeå universitet, Umeå, 13:15 (English)
Opponent
Supervisors
Available from: 2017-05-12 Created: 2017-05-08 Last updated: 2019-04-18Bibliographically approved
Stålnacke, O. (2015). Individual Investors’ Sophistication and Risk and Return Expectations. In: : . Paper presented at International Association for Research in Economic Psychology (IAREP) and Society for the Advancement of Behavioral Economics (SABE), Joint Conference, Sibiu, Romania, Sept 3-6, 2015.
Open this publication in new window or tab >>Individual Investors’ Sophistication and Risk and Return Expectations
2015 (English)Conference paper, Oral presentation only (Other academic)
Abstract [en]

This study investigates the impact of sophistication on individual investors’ risk and return expectations using a survey directed towards a random sample of individual investors in Sweden. Eleven measures that previous studies have found to be related to sophistication are elicited for the study. Novel evidence are found for the importance of sophistication, where individuals risk expectations mainly are associated with their numerical ability and their years of experience while the return expectations are related to their gender, years of experience and educational attainment. Results from a factor analysis indicate that the sophistication measures mainly can be described by two factors capturing most of the variation in the measures. Comparing the absolute deviation for individuals risk and return expectations and objective measures indicate that highly sophisticated individuals have expectations closer to the objective measures then less sophisticated individuals.

National Category
Business Administration
Identifiers
urn:nbn:se:umu:diva-108484 (URN)
Conference
International Association for Research in Economic Psychology (IAREP) and Society for the Advancement of Behavioral Economics (SABE), Joint Conference, Sibiu, Romania, Sept 3-6, 2015
Available from: 2015-09-11 Created: 2015-09-11 Last updated: 2019-06-18Bibliographically approved
Stålnacke, O., Olsson, R. & Hellström, J.Evaluating Measures of Individual Investors’ Expectations of Risk and Return.
Open this publication in new window or tab >>Evaluating Measures of Individual Investors’ Expectations of Risk and Return
(English)Manuscript (preprint) (Other academic)
Abstract [en]

Purpose – The purpose of this paper is to measure individual investors’ expectations of risk and return and to evaluate different expectation measures.

Design/methodology/approach – We measure individual investors’ expectations of risk and return regarding an index fund and two stocks using survey data on a random sample of individual investors in Sweden. The survey contains three different return and four different risk expectation measures. To evaluate the different expectation measures, three different evaluation perspectives are considered.

Findings – The expectations obtained from the different measures are significantly correlated, but the magnitude between the measures differs considerably, especially between the risk expectations. Consequently, the same individual can express risk expectations that either under- or overestimate the forward risk, depending on the measure that is used. The variations in the expectations mainly relate to differences in the responses to the questions underlying the different measures, rather than to the methods used to obtain the expectations. The results from the evaluation of the measures indicate that the expectation measure proposed by Dominitz and Manski (2011) is the only measure for which it is possible to distinguish between individuals’ expectations, using all three of the evaluation perspectives.

Originality/value – This is, to the best of our knowledge, the first paper that evaluates different survey measures of individual investors’ expectations of risk and return.

Keywords
expectations, beliefs, risk, return, subjective probability, survey research
National Category
Business Administration
Identifiers
urn:nbn:se:umu:diva-134452 (URN)
Available from: 2017-05-08 Created: 2017-05-08 Last updated: 2018-06-09
Stålnacke, O.Individual Investors’ Sophistication and Expectations of Risk and Return.
Open this publication in new window or tab >>Individual Investors’ Sophistication and Expectations of Risk and Return
(English)Manuscript (preprint) (Other academic)
Abstract [en]

This study investigates the relationship between individual investors’ level of sophistication and their expectations of risk and return by using eleven sophistication proxies that previous research has related to individuals’ financial decisions. The findings in this paper indicate that sophisticated investors have lower risk and higher return expectations that are closer to objective measures than those of less-sophisticated investors. These results are important, since they enhance the understanding of the underlying mechanisms through which sophistication can influence financial decisions.

Keywords
expectations, sophistication, risk, return, individual investors
National Category
Business Administration
Identifiers
urn:nbn:se:umu:diva-134450 (URN)
Available from: 2017-05-08 Created: 2017-05-08 Last updated: 2018-06-09
Hellström, J., Stålnacke, O. & Olsson, R.Individuals’ Financial Risk-Taking and Peer Influence.
Open this publication in new window or tab >>Individuals’ Financial Risk-Taking and Peer Influence
(English)Manuscript (preprint) (Other academic)
Abstract [en]

Individual investor’s financial risk-taking is linked to the behavior among peers within ones community. By use of data at the individual level, including detailed information about financial holdings, wealth and a host of socioeconomic and demographic characteristics, it is found that risk-taking among peers affect individuals choice of portfolio risk. The results hold for the full sample of individuals concerning their choice of overall proportion of risky assets, as well as for stock market participants’ choice of total- and systematic stock portfolio risk. Overall, the results stress that interaction with peers’ is an important channel through which individuals’ risk-taking is affected.

Keywords
Individual investors, Social interaction, Portfolio choice, Stock market
National Category
Business Administration
Identifiers
urn:nbn:se:umu:diva-134454 (URN)
Available from: 2017-05-08 Created: 2017-05-08 Last updated: 2018-06-09
Organisations
Identifiers
ORCID iD: ORCID iD iconorcid.org/0000-0003-3476-8635

Search in DiVA

Show all publications