under.jpg Discrimination and gender identity are among the many factors that influence investment decision-making, according to speakers at the School’s Seventh Behavioral Finance Conference, which took place December 7-9, 2016, at the University’s Shalala Student Center.

“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 of sponsor Churchill Management Group. He attended a special half-day portion of the conference that focused on aging and retirement, and how financial professionals can help clients prepare for those stages of life. “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,” Levy noted.

More than 100 academics and industry practitioners from around the world attended the three-day conference, cosponsored by the Review of Financial Studies (RFS) and Cubist Systematic Strategies. George Korniotis, an associate professor of finance at the School of Business, organized the conference. Alok Kumar, department chair and Gabelli Asset Management Professor of Finance, chaired the program committee, and finance faculty members Indraneel Chakraborty, Henrik Cronqvist and Stefanos Delikouras chaired sessions.

“Our goal was to create a diverse program that highlighted the different areas of behavioral finance research, including both empirical insights and theoretical research,” Korniotis said. The conference also provided opportunities for academics and doctoral students to share ideas with their colleagues and faculty members from around the world.


“Families with a financially sophisticated husband are more likely to participate in the stock market than those with a wife of equal financial sophistication,” said School of Business finance doctoral student Da Ke in his presentation of his paper, “Who Wears the Pants? Gender Identity Norms and Intra-Household Financial Decision-Making.” Ke added that this pattern is best explained by gender norms that constrain women’s influence over intra-household financial decision-making.
Ke analyzed microdata covering more than 30 million U.S. households. “Rather than treating households as single agents in studies of financial decisions, my research emphasized the interactions between spouses,” he wrote in the paper. “Opening the black box of the decision-making process within families is not only a necessary condition for evaluating the impact of gender-identity norms, but also a promising route for understanding how households manage their financial decisions.”

Because spouses’ financial decisions are made in private, Ke had to use external factors to infer the internal dynamics. He focused on households where the husband, wife or both had careers in the financial sector – and therefore were likely to be financially sophisticated. He found a 49% stock market participation rate when the husband had a financial career, compared with 37% when the wife had a financial career. As a baseline, only 29% of households with spouses in nonfinancial careers were active in the market. “That difference is best explained by gender norms, which constrain women’s influence over intra-household financial decision-making,” Ke said. “Consistent with this interpretation, the baseline effect is attenuated among individuals brought up by working mothers, but becomes stronger among descendants of preindustrial societies in which women specialized in activities within the home, and in households with a husband born and raised in a Southern state.”

As part of his study, Ke conducted a randomized, controlled experiment among participants in employee stock purchase plans (ESPPs), which provide investment opportunities with relatively low risk. “This revealed that female identity hinders idea contribution by the wife. In contrast, male identity causes men to be less open to an opposing viewpoint of their wife, even if her proposition is optimal,” he said. “These findings suggest that gender-identity norms can have real consequences for household financial well-being.”


Discrimination against the LGBTQ community, women and African-Americans can affect an individual’s financial decision-making in many ways, according to School of Business finance doctoral student William Bazley. “We wanted to look at how this widespread social problem affects perceptions of risk,” he said in presenting a groundbreaking paper on “Discrimination, Social Risk and Portfolio Choice,” co-authored by Korniotis and Kumar, as well as Yosef Bonaparte of the University of Colorado.

Bazley noted that 50% of LGBTQ individuals, 33% of African-Americans and 25% of women report feelings of discrimination in the workplace. Along with depression, hypertension and other physical and emotional problems, that sense of marginalization can also have a negative impact on financial decisions, Bazley said.

Financial decisions might be affected by discrimination for many reasons. “Specifically, we wanted to study if discrimination, a negative social experience, has lasting effects on the victims’ personality and how they perceive risk,” Bazley explained. “If discrimination makes victims more cautious and afraid of making risky decisions, it may have a negative impact on investment decisions.”

Through an experiment, the researchers tested whether susceptibility to social discrimination biases minority individuals’ perceptions of risks, particularly their perceptions about income risk (for example, the possibility that their wages and salaries might unexpectedly fall). They found that perceptions of discriminatory experiences do lead to elevated perceptions of income risk. They termed this biased perception “social risk.” Social risk, Bazley explained, has important economic implications. One of the researchers’ key findings was that LGBTQ people, women and African-Americans are less likely to participate in the stock market than white males. Specifically, African-Americans are around 8% less likely and women are around 4% less likely. This means that heightened perceptions of risk due to discrimination could affect investors’ asset allocation decisions, with long-term consequences such as slower-growing retirement portfolios, Bazley explained.

“This paper breaks new ground by looking at how financial choices are shaped by the experience of discrimination,” noted University of Michigan Economics Professor Frank Stafford.


Jeff Bronchick, founder and principal of Cove Street Capital, presented the session, “Older But Not Necessarily Wiser: A Practical Guide to Aging and Investing.” He explained that 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” – success tends to come from patience and thinking through decisions. He cited an example: “A lower level of testosterone can make it easier for men to be patient, rather than react quickly to a change in the markets.”

Bronchick suggested that financial advisors should 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 suggested.

Keynote speaker S. Katherine Roy, chief retirement strategist for JP Morgan Asset Management, discussed “Converting Big Data Into Retirement Insights.” She said her research team has 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 [during] the year they retire and in the following year than they did while they were still working,” she said. “We also know that individuals’ selfreporting of their spending is not reliable.”

Cynthia Hutchins, director of financial gerontology at Bank of America/Merrill Lynch, and Gregory Samanez- Larkin, assistant professor of psychology, cognitive science and neuroscience at Yale University, discussed how likely longevity should affect investment choices and estate planning.

Noting that one in four 65-year-old Americans will reach age 95, Hutchins said good health is retirees’ top concern. “They also believe that passing on values and life lessons is even more important than leaving a financial legacy for their heirs,” she added. “That means financial advisors should talk with them about those issues, as well as traditional estate planning.” Participants in another panel added that financial institutions should consider more active management strategies to preserve elderly clients’ wealth. Churchill Management’s Levy said passive strategies may offer lower fees, but active management has more of an impact on portfolio outcomes in volatile markets. “Rather than taking an increasingly conservative approach with age, you have to look at clients with different lifestyles and provide advice based on what matters to them at different ages,” he said.

Peter Tsui, director of global research and design for S&P Dow Jones Indices, agreed. He said older investors are most concerned about the level and sustainability of their income streams. “To assure stability, you have to manage those funds,” he noted.

Stephen S. Schaefer, senior vice president – wealth management at UBS, added that active management can help retirees guard against “availability bias,” a tendency to take action on the most recent news. He added, “The world is changing fast, and investment strategies need to do so as well.”

Click to read about the keynote: California Institute of Technology's Richard Roll Takes a Micro Look at the Stock Market.

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