Mitigate Bias II - Articles

Question 1

What are the main findings of the article by Borsboom et al. (2022)?

Answer 1

People rely heavily on price charts displaying the past performance.

1. Shorter time fames are associated with more trading activity, resulting in higher transaction fees and investor welfare losses.
2. Time frame does not affect average risk-taking.

Question 2

What is the hypothesis / prediction in the paper by Borsboom et al. (2022)?

Answer 2

1. Long-term prices charts stimulate investor understanding, enabling him to make better investment decisions. On the contrary, short-term frames lead to more frequent trading and overweighting of information.
   -> lead to overreaction by more frequent trading, more trading fees and finally, investor welfare losses
2. Long-term price charts are associated with higher risk-taking (diversification framing bias). Short-term price charts discourage investment in risky assets with a positive experienced return.
   -> H2: Short-term price charts does affect risk-taking behavior.
   -> was rejected due to missing significance

Question 3

What is myopic loss aversion?

Answer 3

Investors strongly focus on the short-term, leading them to react too negatively to recent losses, which may be at the expense of long-term benefits.