Behavioral Finance Conference Offers Both Theoretical and Practical Insights
December 22, 2016
Keynote speaker Katherine Roy with professor
Insights from academic research can help investment professionals do a better job of serving older Americans as well as other clients, according to speakers at the School of Business Administration’s 7th Behavioral Finance Conference on December 7-9.
“The academic community is working hard to prepare the financial services sector for changes that are occurring in the marketplace,” said Ed Levy, vice president, Churchill Management Group, and a participant at a half-day industry conference on aging and retirement. “People are living longer, the markets are volatile, and firms, advisors and product developers need to understand those changes in order to customize services for individual retirees.”
William Bazley, a Phd student at the School of Business, presented a paper on “Discrimination, Social Risk and Portfolio Choice,” co-authored by George Korniotis and Alok Kumar, finance professors at the School, and Yosef Bonaparte from the University of Colorado. The study found that African Americans, women, and LGBTQ individuals – those more likely to experience social discrimination in their lifetime – are less likely to participate in the stock market and also allocate less of their wealth to equities. “Even the fear of potential discrimination may have a negative impact on investment and career decisions,” said Bazley.
Richard Roll, Linde Institute Professor of Finance, California Institute of Technology, delivered the conference keynote speech on “The Propagation of Shocks Across International Equity Markets: A Microstructure Perspective.” Using big data research tools, Roll examined jumps in stock prices at five-minute intervals in the trading day on major exchanges in 12 counties from 1996-2011. He also looked at possible connections between those price changes, liquidity and trading activity.
Ed Levy, Peter Tsui and Stephen Schaefer after
“We know that macroeconomic news events are responsible for order imbalances and price jumps,” he said. “But lack of liquidity is often cited as another causative factor. We found that jumps in prices were accompanied by only small moves in liquidity, suggesting that price shocks are not liquidity driven.”
Roll also found that a micro liquidity shock in one market didn’t necessarily lead to liquidity problems in other markets. “This also speaks against the idea that liquidity is responsible for major financial crises,” he said.
The industry portion of the conference featured Jeff Bronchick, founder and principal, Cove Street Capital, as a keynote speaker. In his talk, "Older But Not Necessarily Wiser: A Practical Guide to Aging and Investing,” Bronchick said hormones, emotions and instinctive thinking patterns can make it difficult to make logical financial decisions at any age. “Sports and some types of art are geared to the young, where boldness and high energy are invaluable,” he said. “On the other hand, good investing is exactly the opposite. A lower level of testosterone can make it easier for men to be patient rather than react quickly to a chance in the markets.”
Bronchick suggested that financial advisors simplify investment choices for their clients, and look at short- and long-term lifestyle goals, as well as a portfolio’s performance. “Older investors should work with a trusted advisor with low fees, set up an investing plan, and turn off CNBC,” he said.
Thomas Mierswa, Jr., Susan Axelrod, Shawn
A second keynote speaker, S. Katherine Roy, chief retirement strategist at JP Morgan Asset Management, discussed "Converting Big Data into Retirement Insights." She said her research team had debunked many assumptions related to retirement planning, and is using big data to improve the investor experience and produce better outcomes.
“We want to get defined contribution (DC) plan participants across the finish line successfully as often as possible,” she said. “To do that, we need to understand what the average participant is likely to do.” For example, Roy said financial advisors should not assume that retirees’ spending patterns will be the same as they grow older. “We have also found that people spend more the year they retire and in the following year than they did while they were still working,” she said. “We also know that individuals’ self-reporting of their spending is not reliable.”