The effect of investment and withdrawal horizons on myopic loss aversion

ABSTRACT

Using unique survey data, we find that a longer investment horizon (6–10 years and 11+ years) reduces the likelihood of exhibiting myopic loss aversion (MLA) compared to an investment horizon of less than 2 years. In addition, we find that investors with higher levels of assets under management (AUM) are less likely to exhibit MLA compared to the lowest AUM quartile.

KEYWORDS:

• Myopic loss aversion
• investment horizon
• assets under management
• portfolio

JEL CLASSIFICATION:

• D81
• D90
• E70
• G11
• G40

Acknowledgements

The authors would like to thank Russell James and Xianwu (Sean) Zhang for their contributions to this manuscript.

Disclosure statement

No potential conflict of interest was reported by the authors.

Notes

¹ The loss aversion coefficient estimate in Tversky and Kahneman (1992) is 2.25.

² Refer to Gneexy & Potters (1997) for a similar explanation.

³ Refer to Hardin and Looney (2012) for a more detailed discussion.