The individual investor behavior on vulnerable conditions

• Grant number: 20/09648-7
• Support Opportunities: Scholarships in Brazil - Doctorate
• Start date: February 01, 2021
• End date: December 31, 2022
• Field of knowledge: Applied Social Sciences - Economics
• Principal Investigator: Marco Antonio Cesar Bonomo
• Grantee: Guilherme Leite Paiva
• Host Institution: Instituto de Ensino e Pesquisa (Insper). São Paulo , SP, Brazil

Abstract

The study of individual investor behavior has been one of the most active areas of research inside behavioral finance. There is an extensive literature documenting the robust patterns in investor activity that are different from the predictions of the models that use the traditional finance paradigm. Individuals make systematic mistakes, the so-called behavioral biases, and have the potential to influence the pricing of assets. Interesting enough, after twenty years of active research, no study investigated the action of investors in situations of vulnerability. This project proposes to take the first step in filling this void by studying the individual investor behavior in unemployment dynamics, retirement and with impaired health. To take this first step we propose a simple diff-in-diff strategy estimation and rely on two highly detailed data, one with all the daily individual transactions in the Brazilian stock market, and another with all employment dynamics of the Brazilian formal sector. Brazil has seen a recent surge in the number of individuals investing in equities, while the recent changes in its social security retirement system made individuals more responsible for their own financial well-being in elderly ages, making the study of individual investors increasingly important. It is well disseminated in the literature that individuals trade to their detriment, and explore the trading on vulnerable situations is important. (AU)