TY - JOUR
T1 - Mark Twain's Cat
T2 - Investment experience, categorical thinking, and stock selection
AU - Huang, Xing
N1 - Publisher Copyright:
© 2018 Elsevier B.V.
PY - 2019/2
Y1 - 2019/2
N2 - This paper examines the effect of prior investment experience in specific industries on subsequent investment decisions. Using households’ trading records from a large discount broker between 1991 and 1996, I find that prior success in a given industry increases the likelihood of subsequent purchases in the same industry. The effect is stronger for more recent experiences and for less sophisticated or diversified investors, and it is not wealth enhancing. The results suggest investors categorize industries at a highly resolved level, finer than the Fama–French ten-industry classification. Similar effects are also apparent for size- and value-based categories but at smaller magnitudes.
AB - This paper examines the effect of prior investment experience in specific industries on subsequent investment decisions. Using households’ trading records from a large discount broker between 1991 and 1996, I find that prior success in a given industry increases the likelihood of subsequent purchases in the same industry. The effect is stronger for more recent experiences and for less sophisticated or diversified investors, and it is not wealth enhancing. The results suggest investors categorize industries at a highly resolved level, finer than the Fama–French ten-industry classification. Similar effects are also apparent for size- and value-based categories but at smaller magnitudes.
KW - Categorical thinking
KW - Household finance
KW - Investment experience
UR - https://www.scopus.com/pages/publications/85052807038
U2 - 10.1016/j.jfineco.2018.08.003
DO - 10.1016/j.jfineco.2018.08.003
M3 - Article
AN - SCOPUS:85052807038
SN - 0304-405X
VL - 131
SP - 404
EP - 432
JO - Journal of Financial Economics
JF - Journal of Financial Economics
IS - 2
ER -