TY - UNPB

T1 - The Trading Response of Individual Investors to Local Bankruptcies

AU - Laudenbach, Christine

AU - Loos, Benjamin

AU - Pirschel, Jenny

AU - Wohlfart, Johannes

PY - 2020/4/23

Y1 - 2020/4/23

N2 - 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 effects 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 effects 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.

AB - 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 effects 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 effects 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.

KW - Individual Investors

KW - Risk-Taking

KW - Trading

KW - Experiences

U2 - 10.2139/ssrn.3559402

DO - 10.2139/ssrn.3559402

M3 - Working paper

T3 - CEBI Working Paper Series

BT - The Trading Response of Individual Investors to Local Bankruptcies

ER -