City Research Online

The Meerkat Effect: Personality and Market Returns Affect Investors’ Portfolio Monitoring Behavior

Gherzi, S., Egan, D., Stewart, N., Haisley, E. and Ayton, P. (2014). The Meerkat Effect: Personality and Market Returns Affect Investors’ Portfolio Monitoring Behavior. Journal of Economic Behavior & Organization, doi: 10.1016/j.jebo.2014.07.013

Abstract

Karlsson, Loewenstein and Seppi (2009) found that, following market downswings, investors are less likely to login to monitor their retirement portfolios. They concluded that, rather like (apocryphal) ostriches sticking their heads in the sand, investors avoid unpleasant information by reducing portfolio monitoring in response to news of negative market movement. We apply generalized non-linear mixed effects models to test for this selective information monitoring at an individual level in a new sample of active online investors. We see different behavior in this new sample. We find that investors increase their portfolio monitoring following both positive and daily negative market returns, behaving more like hyper-vigilant meerkats than head-in-the-sand ostriches. This pattern persists for logins not resulting in trades and weekend logins when markets are closed. Moreover, an investor personality trait – neuroticism - attenuates the pattern of portfolio monitoring suggesting that market–driven variation in portfolio monitoring is attributable to psychological factors.

Publication Type: Article
Additional Information: NOTICE: this is the author’s version of a work that was accepted for publication in Journal of Economic Behavior & Organization. Changes resulting from the publishing process, such as peer review, editing, corrections, structural formatting, and other quality control mechanisms may not be reflected in this document. Changes may have been made to this work since it was submitted for publication. A definitive version was subsequently published in Journal of Economic Behavior & Organization, [VOL#, ISSUE#, (DATE)] http://dx.doi.org/10.1016/j.jebo.2014.07.013. Article in press.
Publisher Keywords: Behavioral finance, individual investors, selective attention, personality, investment decisions, ostrich effect
Subjects: B Philosophy. Psychology. Religion > BF Psychology
H Social Sciences > HB Economic Theory
Departments: School of Arts & Social Sciences > Psychology
URI: http://openaccess.city.ac.uk/id/eprint/3875
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