Getting out early

JulieW · May 8, 2016

When the going gets rough, the 1 per cent start selling.

That's the finding of a new paper that says people with the highest income bailed from stocks disproportionately on the worst days of the financial crisis. The share of selling by the biggest earners rose "sharply" in days following spikes in volatility, according to data on millions of sales reported to the government in 2008 and 2009.

Mapping selling patterns in periods of tumult is of interest to researchers trying to get at the psychological underpinnings of events such as the financial crisis, when more than $US10 trillion ($13 trillion) was erased from US shares, the world's biggest sharemarket, alone. Their main conclusion, that different people react with varying urgency to signs of trouble, could help identify behavioural biases that feed market meltdowns.

"Very, very high income people are disproportionately likely to sell a bunch of stock during a financial crisis," said Daniel Reck, a doctoral candidate in the economics department at the University of Michigan and one of the paper's authors. "It's difficult to say exactly how much high-income people are responsible relative to everyone else, but they're certainly contributing more to volatility."

Higher stakes, or better at timing trades?

One explanation for the divergence is that rich people have more at stake per person and are more sensitive to shocks, though it's only speculation, Reck said. Another is they believe they're better market timers. A third possibility is that investors who earn less are reluctant to sell at a loss, a cognitive tendency known as the disposition effect.

Read more: http://www.theage.com.au/business/m...ollapsed-kicking-off-gfc-20160503-goljee.html
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Pirocco · May 8, 2016

I thought the very very rich didn't pay tax so how can those State universities of Michigan and Ohio then use tax return forms as input?

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Getting out early

JulieW Well-Known Member Silver Stacker

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