Volume 5, Number 1, 2004 Abstracts
© Copyright Erlbaum 2004

Bleed or Blowup? Why Do We Prefer Asymmetric Payoffs?
Nassim Nicholas Taleb-New York University

The Effect of Ex Ante Price on Momentum Profits
Zhan Onayev-George Washington University
Robert Savickas-George Washington University

We find a strong effect of component stock prices (as of one year before the returns-ranking period) on the magnitude and duration of momentum. Relative strength portfolios formed of high-priced stocks earn statistically significant momentum profits for any holding period in the first three to four years. The effective annual return of the high-priced momentum portfolio for the first year is economically significant at 18.4%, after controlling for the capitalization, trading volume, and unconditional mean effects. This return is considerably higher than the 11.3% earned by low-priced momentum portfolios. Although the price level is correlated with capitalization and trading volume, the price effect is not a mere manifestation of the capitalization and volume effects, as it endures even when the other factors are controlled for. We discuss several implications of our results for the existing behavioral and risk-based explanations of momentum, as none of these models have an explicit role for the price effect.

Perceptions of Successful Traders by Foreign Exchange Professionals
Thomas Oberlechner-Harvard University and Webster University Vienna

This exploratory study examines which characteristics are perceived to be important for a successful foreign exchange trader. The findings are based on ratings by 291 professional traders at leading European banks. A factor analysis of ratings results in eight primary factors: disciplined cooperation, tackling decisions, market meaning making, emotional stability, information processing, interested integrity, autonomous organization, and handling information. Differing work location, type of foreign exchange instrument, and trading area resulted in significant differences regarding the perceived importance of these factors. Contributing to a differentiated understanding of market participants, results suggest the need for systematic job analyses of traders and may lead to more valid methods of hiring.

Identifying Heuristic Choice Rules in the Swedish Premium Pension Scheme
Ted Martin Hedesstrom-Goteborg University, Sweden
Henrik Svedsater-Goteborg University, Sweden
Tommy Garling-Goteborg University, Sweden

We analyze choices of a randomly selected sample of 10,999 citizens in the Swedish premium pension scheme. The aim is to identify the presence of various heuristic choice rules commonly observed in human decision making. Evidence suggests the prevalence of a default bias, the use of a diversification heuristic, extremeness aversion, a home bias, and the use of a 1/n heuristic. In some cases, cognitive simplification or wishful thinking may underlie the use of these heuristics. In other cases, their use seems to be consistent with recommendations provided by the responsible authority.

Adaptive Portfolio Allocation with Options
Uri Benzion-Ben-Gurion University
Ernan Haruvy-Ben-Gurion University
Tal Shavit-Ben-Gurion University

We conducted a laboratory experiment of repeated portfolio allocation choice between a bond, a stock, and a put option on the stock. The study involves two conditions: a full hedging possibility and a partial hedging possibility. Surprisingly, participants were able to converge to the mean-variance frontier in the environment with partial hedging possibilities, but were unable to do so in the full hedging condition. This suggests that subjects may not be cognizant of the mean-variance frontier. If subjects begin away from the frontier and have to adjust toward it, incentives off the frontier are critical. Simulations of adaptive dynamic models confirm this assertion. The study provides insight into the adaptive behavior of investors in the presence of hedging possibilities and implications for efficient investment strategies.

Are IPOs Priced Differently Based Upon Gender?
Nancy J. Mohan-University of Dayton
Carl R. Chen-University of Dayton

Differences between male and female management style, risk aversion, investment strategies, and financial decision making can be found in economic, management, psychology, and social literature. There are no published studies, however, linking gender issues with valuation. In this article, we consider differences in pricing female- versus male-led initial public offerings. Specifically, we find no difference in firm characteristics between a female-led and a male-led IPO, and no difference in underpricing between male-led and female-led IPOs after controlling for firm-specific variables. Our evidence suggests that in a market such as IPOs, where subjects share more similar opportunity sets, wealth, and knowledge, gender bias does not exist.

Research Elsewhere
Robert A. Olsen-California State University, Chico and Decision Research in Eugene, Oregon