Older, richer savvier men more prone to biases

Older, richer savvier men more prone to biases

Men who are older, richer and savvier are more prone to biases when investing, a new survey has found.

The study, by three students from the Nanyang Business School of the Nanyang Technological University (NTU), shows that gender, age and smarts all affect investing bias - sometimes in surprising ways.

For instance, men are more overconfident about their investing ability than women, according to students Chiang Jia Bing, Joel Siew and Raymond Toh.

"After a long winning streak, (men) tend to believe they will consistently outperform the market and hence trade excessively," said the students, who polled 221 Singapore investors.

"Unfortunately, this leads to significant errors as they brush aside subsequent mistakes as aberrations."

Men also suffer more from the disposition effect, the survey has found.

They sell winning stocks too soon and hold losing ones too long, leading to lower gains and larger losses.

Lastly, men are more likely than women to have "home bias": a preference for investing in local shares over foreign counters.

Because of this, they overallocate funds to the local market and forgo some geographical diversification benefits, the NTU students said.

Older investors are also subject to the same biases, the study shows.

In addition, investors also tend to fall prey to loss aversion and confirmation bias as they age.

Confirmation bias is when investors seek only proof of their beliefs and ignore contrary data.

Loss aversion, where the pain of losing money outweighs the pleasure of profit, skews a portfolio towards safe investments with low returns.

Interestingly, investors with higher income, education and financial literacy are more prone to the overconfidence and disposition effect biases, but less to loss aversion, the study shows.

The findings are important as investors led astray by bias may have underperforming portfolios, said the NTU banking and finance students, who are all in their final year of studies.

The students, led by their supervisor, Dr Kong Yoon Kee, also noted that the study results are "worrying" because men tend to be more involved in household investment decisions and because Singapore's population is ageing.

"Investment bias is an important element that is often overlooked, and underestimated," they concluded.

"In the light of this, investor advocacy groups should extend financial education to include awareness about investment biases and their risks."


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