Conference Agenda

This paper exploits individual trading records from a large brokerage service to investigate the trading patterns of retail investors who take short positions in stocks. Short sellers' research activity does not suggest that they increase the amount of attention paid to stocks before taking short positions. Although short sellers report lower risk tolerance in their MiFID II questionnaires, their order behavior in short positions indicates greater risk-seeking behavior. Short positions, compared to long positions, constitute larger portions of overall portfolios and are more highly leveraged. Compared with other retail investors, short sellers perform worse, and their profit variability is greater.

Investment mistakes among self-directed retail investors are well-documented. Our study, based on data from a leading German private bank, provides new insights into High Net Worth Individuals (HNWIs). Their investment decisions are less tied to short-term needs and often supported by dedicated advisors. We explore whether HNWIs’ investment decisions are less biased than those of retail clients and how financial advice affects these biases. Our findings show that HNWIs display less overtrading, broader diversification, and lower susceptibility to the disposition effect. Financial advisors significantly improve diversification and risk management but have limited success in reducing overtrading among persistently active clients.

We show that the pricing of earnings information differs when market ambiguity is high. Using a sample of 616 S&P 500 firms, spanning from 2006 through 2023, we find ambiguity-induced pricing asymmetries between positive and negative news. Moreover, idiosyncratic risk is priced when the ambiguity is high. This supports the theoretical results of the Multiple Priors Utility. Ambiguity aversion impedes full diversification of idiosyncratic risk as portfolios are priced at their worst-case realization.