As the U.S. economy continues to lag, many investors remain wary about taking risks with the stock market. Now, researchers at MU have concluded that this attitude toward investment risk-taking is more than just a recent trend.
Rui Yao, a University of Missouri assistant professor in the Personal Financial Planning department in the College of Human Environmental Sciences, has found that during the past two decades, the risk tolerance of investors is positively correlated to the movements of the stock market, meaning that investors are likely to invest more when market returns are high, and withdraw partially or even completely from the market when returns are negative.Rui Yao, a University of Missouri assistant professor in the Personal Financial Planning department in the College of Human Environmental Sciences.
Yao warns that this tendency will ultimately lead to ineffective investment tactics and unnecessary financial losses. She says that a positive correlation between risk tolerance and stock market returns shows that investors are buying stocks at a high price and selling them at a low price, which is not sound investment strategy.
“To maximize returns, the ideal strategy is to buy stocks at a low price, with the hope of selling them at a higher price,” Yao said. “However, many investors seem to be unwilling to take risks when the market is at a low point and seem content to only invest when the market is at a high point.”
In her study, Yao examined the Health and Retirement Study (HRS) to investigate changes of risk tolerance levels over time in response to stock market returns. The HRS is a longitudinal study conducted by the University of Michigan since 1992. During the course of the study, participants were given hypothetical scenarios about income gambles and were assigned to a level of risk tolerance based on their answers. The study tracked the responses of each participant between 1992 and 2006 and compared it to the state of the stock market at the time of each response.
Yao found that many Americans are not behaving according to rational economic model assumptions. She says that such changes in risk tolerance in response to market returns may be an indication that investors, and possibly their financial advisors, overestimate their ability to understand risk and assess individual risk tolerance.
“Having the ability to understand risks and assess risk tolerance has a direct impact on individual well-being,” Yao said. “Ultimately, improved financial education is the best way to help Americans overcome the bias of over-weighting recent market performance when making investment decisions.”
This study was published in the Journal of Economic Issues.
Nathan Hurst | EurekAlert!
How Strong Brands Translate into Money
15.11.2016 | Kühne Logistics University - Wissenschaftliche Hochschule für Logistik und Unternehmensführung
Demographic change depresses tax revenues
04.11.2016 | Fraunhofer-Institut für Angewandte Informationstechnik FIT
Among the general public, solar thermal energy is currently associated with dark blue, rectangular collectors on building roofs. Technologies are needed for aesthetically high quality architecture which offer the architect more room for manoeuvre when it comes to low- and plus-energy buildings. With the “ArKol” project, researchers at Fraunhofer ISE together with partners are currently developing two façade collectors for solar thermal energy generation, which permit a high degree of design flexibility: a strip collector for opaque façade sections and a solar thermal blind for transparent sections. The current state of the two developments will be presented at the BAU 2017 trade fair.
As part of the “ArKol – development of architecturally highly integrated façade collectors with heat pipes” project, Fraunhofer ISE together with its partners...
At TU Wien, an alternative for resource intensive formwork for the construction of concrete domes was developed. It is now used in a test dome for the Austrian Federal Railways Infrastructure (ÖBB Infrastruktur).
Concrete shells are efficient structures, but not very resource efficient. The formwork for the construction of concrete domes alone requires a high amount of...
Many pathogens use certain sugar compounds from their host to help conceal themselves against the immune system. Scientists at the University of Bonn have now, in cooperation with researchers at the University of York in the United Kingdom, analyzed the dynamics of a bacterial molecule that is involved in this process. They demonstrate that the protein grabs onto the sugar molecule with a Pac Man-like chewing motion and holds it until it can be used. Their results could help design therapeutics that could make the protein poorer at grabbing and holding and hence compromise the pathogen in the host. The study has now been published in “Biophysical Journal”.
The cells of the mouth, nose and intestinal mucosa produce large quantities of a chemical called sialic acid. Many bacteria possess a special transport system...
UMD, NOAA collaboration demonstrates suitability of in-orbit datasets for weather satellite calibration
"Traffic and weather, together on the hour!" blasts your local radio station, while your smartphone knows the weather halfway across the world. A network of...
Fiber-reinforced plastics (FRP) are frequently used in the aeronautic and automobile industry. However, the repair of workpieces made of these composite materials is often less profitable than exchanging the part. In order to increase the lifetime of FRP parts and to make them more eco-efficient, the Laser Zentrum Hannover e.V. (LZH) and the Apodius GmbH want to combine a new measuring device for fiber layer orientation with an innovative laser-based repair process.
Defects in FRP pieces may be production or operation-related. Whether or not repair is cost-effective depends on the geometry of the defective area, the tools...
10.01.2017 | Event News
09.01.2017 | Event News
05.01.2017 | Event News
16.01.2017 | Power and Electrical Engineering
16.01.2017 | Information Technology
16.01.2017 | Power and Electrical Engineering