Carmen Lee defends PhD Thesis 'Psychological Factors Explaining Investors' Selling Decisions'

On June 10, Carmen Lee successfully defended her PhD thesis on the psychological factors explain investors’ selling decisions.

07/14/2011 | 4:33 PM

Her work investigates the topic from an interdisciplinary perspective, combining insights from both marketing and finance.

People hardly behave in a perfectly rational manner as assumed in many economic models. In reality, individual investors are often too confident about their decisions and often trade too much. Also, investors tend to sell winning investments too soon and hold losing investments too long, which is known as the disposition effect. Although investors tend to hold on to losing investments, many of them eventually sell. However, it is not clear how individuals reach this painful emptycapitulation decision. In her PhD thesis, Carmen Lee focused on psychological factors and examined the role of adaptation and emotions in investors' decision-making processes. 

Lee conducted two experiments. In the first study, she shows that when facing losses, people who adapt little to prior losses are more likely to capitulate the losing investment than those who have adapted more to the prior losses. In the second study she finds that specific emotions, such as pride and regret, are key drivers of investors' selling decision. This means that we should look beyond the general term 'market sentiments' and look into how different emotions lead to different reactions. 

This thesis contributes to increasing body of scientific knowledge in behavioural finance, and the insights of these studies can help the academia and financial industry better understand the psychological aspects of individual investors' decision-making processes.

The entire thesis can be downloaded at VU-DARE.