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Start Small and Stay Small: Anchoring in App-Based Investing

Start Small and Stay Small: Anchoring in App-Based Investing Abstract Stock trading apps have encouraged millions of people to begin micro-investing. While investing is beneficial in the long-run, we demonstrate a potential downside to the micro-investing trend. Using a novel data set of stock trades from an app-based broker, we show that anchoring leads to lower wealth accumulation when investors start their journey with a small first purchase. A unique feature of the broker’s platform allows us to disentangle anchoring from a rational repetition strategy: stock gift cards. Since the value of a stock gift card is determined exogenously, the amount of that gift card represents a true external anchor for the recipient, affecting subsequent behaviors. Over one year, a $1 increase in the amount of an investor’s initial stock purchase results in a $4.63 increase in the total amount that an investor contributes to their investment account, all else equal. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Journal of Behavioral Finance Taylor & Francis

Start Small and Stay Small: Anchoring in App-Based Investing

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References (37)

Publisher
Taylor & Francis
Copyright
© 2023 The Institute of Behavioral Finance
ISSN
1542-7579
eISSN
1542-7560
DOI
10.1080/15427560.2023.2209233
Publisher site
See Article on Publisher Site

Abstract

Abstract Stock trading apps have encouraged millions of people to begin micro-investing. While investing is beneficial in the long-run, we demonstrate a potential downside to the micro-investing trend. Using a novel data set of stock trades from an app-based broker, we show that anchoring leads to lower wealth accumulation when investors start their journey with a small first purchase. A unique feature of the broker’s platform allows us to disentangle anchoring from a rational repetition strategy: stock gift cards. Since the value of a stock gift card is determined exogenously, the amount of that gift card represents a true external anchor for the recipient, affecting subsequent behaviors. Over one year, a $1 increase in the amount of an investor’s initial stock purchase results in a $4.63 increase in the total amount that an investor contributes to their investment account, all else equal.

Journal

Journal of Behavioral Finance – Taylor & Francis

Published: May 11, 2023

Keywords: Anchoring; app-based investing; behavioral finance; investment decisions; personal finance; D14; G11; G41; G51

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