Myopic Loss Aversion and Investment Decision: An Empirical and Experimental Study of Traders in Stock Market

Lead researchers:

Asad Islam, Monash University, Australia
Kazi Iqbal, Bangladesh Institute of Development Studies (BIDS)

Partners: Monash University, Australia

Status: Complete

Method: Quantitative

The overview of the project:

Behavioral finance has become a vital component to explain irrationality in financial decision and enable us to understand more about the stock market. Financial traders are the vital component of financial decision-making process and price settings, yet evaluation of their financial behavior under laboratory setting and its connect to real life decision remain largely unknown. The aim of this research is to get closer look on the relationship between investment behavior under laboratory setting and real investment decision of traders in their natural domains.

We collaborate with several brokerage houses in Dhaka stock market to obtain daily trading data of more than 350 retail stock market traders/investors. The traders also participate in our lab-in-the-field games to measure the prevalence of Myopic loss aversion and other behavioral outcomes such as ambiguity, risk and time preferences. We then combine the experiment results with a unique dataset on daily transactions and portfolio positions of these traders over two years to study the link between individual investment decision under controlled experiment setting and in real life.