Employer's stock - list of biases

CFA Level III Portfolio Management
#1

What are the potential biases available if one is invested in the company they work for?

Lets list down : -

  1. Illusion of control

  2. Availabiltiy

  3. Naive diversification

  4. Familiarity ( i think it is removed in 2012)

what else?

#2

I think availability is not there. Would like to hear from others…

#3

Pg 127

  • Familiaity and overconfidence effects
  • Naive extrapolation of past returns.
  • Framing / Status quo effect of matching contributions
  • Loyalty
  • Financial incentives.
#4

what about illusion of control - belief perseverance cognitive error?

#5

what about illusion of control - belief perseverance cognitive error? p no 64

#6

yes that too.

#7

I would think Endowment would be one.

#8

mark - to clarify …

wouldn’t endowment be a reason why you would continue to hold on to your existing position. Not why you would buy more of the same …

#9

sorry about the double post…

#10

I could see it both ways. They feel the stock has a value beyond it’s actual fundamental value because of their attachment to the company, and the more control they have over the company, the more they endow the stock with intangible benefits. This would result in not selling, and potentially also buying more.

#11

endowment bias causes you to revile unfamiliar assets, so if any investment activity takes place it must be wrt familiar assets…?

#12

I have no clue what you are trying to say.

#13

revile = hate. so you would not purchase something you are unfamiliar with. is what I think alladin is getting at.