How important are early investment experiences on subsequent investment decisions? A laboratory experiment on asset allocation

Abstract

Purpose

The purpose of this paper is to examine the influence of early investment experiences on subsequent portfolio allocation decisions in a laboratory setting.

Design/methodology/approach

In an experiment in which the task consisted of allocating a portfolio between a risky and riskless asset for 20 periods, two groups of subjects were confronted with either a market boom or bust in the initial four periods.

Findings

The findings suggest that after controlling for demographic characteristics, the timing of a boom or bust during the investment lifecycle matters greatly. Subjects that faced a bust early in their investment lifecycle held less of the risky asset in subsequent periods compared to subjects who experienced an early boom.

Originality/value

To the best of the authors knowledge this is the first laboratory study investigating the role of early aggregate shocks on subsequent investment behavior.

Citation

Papadovasilaki, D., Guerrero, F., Sundali, J. and Stone, G. (2015), "How important are early investment experiences on subsequent investment decisions? A laboratory experiment on asset allocation", Managerial Finance, Vol. 41 No. 6, pp. 582-590. https://doi.org/10.1108/MF-09-2014-0246