Is there Swissness in investment decision behavior and investment competence?

Abstract

Based on a large international survey, we analyze how German-, French-, and Italian-speaking residents of Switzerland differ in their investment decision behavior and investment competence compared to their closest neighbors abroad who speak the same language. Although language may be closer to the individual self than country of residence, we find that there are greater similarities in the decision behavior of residents of Switzerland speaking different languages than there are between these and their linguistically closest neighbors abroad. These similarities hold also for the ability to avoid investment mistakes, which is stronger in all Swiss regions compared to the linguistically closest regions abroad. The Swissness in investment competence is more likely to be emotionally than knowledge driven and is associated with regional differences in the relationships with investment advisors.

This is a preview of subscription content, log in to check access.

Fig. 1

Notes

  1. 1.

    We chose the regions Baden-Wuerttemberg and Bayern in Germany, Lombardia, Piemonte, and Veneto in Italy, and Alsace, Franchecomte, and Rhone-Alps in France.

  2. 2.

    The market research agencies use panels comprising individuals who have agreed to participate in online surveys. The participating individuals have a variety of professional backgrounds and experience in various industries. The target participants receive information on the goal of the study, general information on the questions, and an estimate of the maximum amount of time required to answer the questions. Based on this information, participants decide whether or not to participate in the survey. Compensation is received upon completing the survey.

  3. 3.

    Principal component analysis indicates that investment experience is generally not limited to a particular asset class, and experience with different asset classes can be well summarized with one measure.

  4. 4.

    The Swiss Labor Force Survey is based on statements from about 4000 participants with permanent residence in Switzerland.

  5. 5.

    Source: https://doi.org/www.bfs.admin.ch/bfs/portal/de/index/themen/20/02/blank/key/vermoegen.html.

  6. 6.

    Source: https://doi.org/www.bfs.admin.ch/bfs/portal/de/index/themen/15/17/blank/01.indicator.406101.4086.html?open=9#9.

References

  1. Acker, D., Duck, N.W.: Cross-cultural overconfidence and biased self-attribution. J. Socio Econ. 37, 1815–1824 (2008)

    Article  Google Scholar 

  2. Barber, B.M., Lee, Y.T., Liu, Y.J., Odean, T.: Just how much do individual investors lose by trading? Rev. Financ. Stud. 22(2), 609–632 (2009)

    Article  Google Scholar 

  3. Barberis, N., Xiong, W.: Realization utility. J. Financ. Econ. 104(2), 251–271 (2012)

    Article  Google Scholar 

  4. Barber, B.M., Odean, T.: Trading is hazardous to your wealth: the common stock investment performance of individual investors. J. Finance 55(2), 773–806 (2000)

    Article  Google Scholar 

  5. Behrman, J.R., Mitchell, O.S., Soo, C., Bravo, D.: How financial literacy affects household wealth accumulation. Am. Econ. Rev. 102(3), 300–304 (2012)

    Article  Google Scholar 

  6. Blume, M., Friend, I.: The allocation of wealth to risky assets-the asset structure of individual portfolios and some implications for utility functions. J. Finance 30, 585–603 (1975)

    Article  Google Scholar 

  7. Bowles, S.: Endogenous preferences: the cultural consequences of markets and other economic institutions. J. Econ. Lit. 36(1), 75–111 (1998)

    Google Scholar 

  8. Brinson, G.P., Hood, L.R., Beebower, G.L.: Determinants of portfolio performance. Financ. Anal. J. 42(4), 39–44 (1986)

    Article  Google Scholar 

  9. Brown, M., Graf, R.: Financial literacy and retirement planning in Switzerland. Numeracy 6(2), 619–635 (2013)

    Article  Google Scholar 

  10. Brügger, B., Lalive, R., Zweimüller, J.: Does Culture Affect Unemployment? Evidence from the Röstigraben. IZA Discussion Papers. Retrieved from (2009) https://doi.org/ideas.repec.org/p/iza/izadps/dp4283.html

  11. Calvet, L.E., Campbell, J.Y., Sodini, P.: Measuring the financial sophistication of households. Am. Econ. Rev. 99, 393–398 (2009)

    Article  Google Scholar 

  12. Charness, G., Levin, D.: When optimal choices feel wrong: a laboratory study of Bayesian updating, complexity, and affect. Am. Econ. Rev. 95(4), 1300–1309 (2005)

    Article  Google Scholar 

  13. Chen, M.K.: The effect of language on economic behavior: evidence from saving rates, health behaviors and retirement assets. Am. Econ. Rev. 103(2), 690–731 (2013)

    Article  Google Scholar 

  14. Esser, F., Umbricht, A.: Competing models of journalism? Political affairs coverage in US, British, German, Swiss, French and Italian newspapers. Journalism 14, 989–1007 (2013)

    Article  Google Scholar 

  15. Eugster, B., Parchet, R.: Culture and Taxes: Towards Identifying Tax Competition. Cahiers de Recherches Economiques du Département d’Econométrie et d’Economie politique (DEEP) (2013)

  16. Eugster, B., Lalive, R., Stienhauer, A., Zweimueller, J.: The demand for social insurance: does culture matter? Econ. J. 121, 413–448 (2011)

    Article  Google Scholar 

  17. Fehr, E., Ho, K.: Introduction: tastes, castes and culture: the influence of society on preferences. Econ. J. 121, 396–412 (2011)

    Article  Google Scholar 

  18. Feld, L.P., Kirchgassner, G.: Direct Democracy, Political Culture, and the Outcome of Economic Policy?: A Report on the Swiss Experience. Working Paper, University of St. Gallen (2000)

  19. Gilovich, T., Wang, R.F., Regan, D., Nishina, S.: Regrets of action and inaction across cultures. J. Cross Cult. Psychol. 34(1), 61–71 (2003)

    Article  Google Scholar 

  20. Goetzmann, W.N., Kumar, A.: Equity portfolio diversification. Rev. Finance 12, 433–463 (2008)

    Article  Google Scholar 

  21. Henrich, J.: Does culture matter in economic behavior? Ultimatum game bargaining among the Machiguenga of the Peruvian Amazon. Am. Econ. Rev. 90(4), 973–979 (2000)

    Article  Google Scholar 

  22. Hoff, K., Kshetramade, M., Fehr, E.: Caste and punishment: the legacy of caste culture in norm enforcement? Econ. J. 121(556), 449–475 (2011)

    Article  Google Scholar 

  23. Kelly, M.: All their eggs in one basket: portfolio diversification of US households. J. Econ. Behav. Organ. 27, 87–96 (1995)

    Article  Google Scholar 

  24. King, R.D.: Should English be the law? Atl. Mon. 279(4), 55–64 (1997)

    Google Scholar 

  25. Koestner M., Meyer, S., Hackethal, A.: Do Individual Investors Learn from Their Mistakes? SSRN Working Paper 2122652 (2012)

  26. Kuo, M.-H., Chen, S.K., Chen, S.-S.: How to lessen the disposition effect? It pays to study before investing. Adv. Bus. Manag. Forecast. 9, 77–90 (2013)

    Article  Google Scholar 

  27. Lehenkari, M.: In search of the underlying mechanism of the disposition effect. J. Behav. Decis. Mak. 16, 196–209 (2012)

    Article  Google Scholar 

  28. Levin, I.P., Gaeth, G.J., Evangelista, F., Albaum, G., Schreiber, J.: How positive and negative frames influence the decisions of persons in the United States and Australia. Asia Pac. J. Mark. Logist. 13(2), 64–71 (2001)

    Article  Google Scholar 

  29. Levinson, J.D., Peng, K.: Valuing cultural differences in behavioral economics. Psychology 4(1), 32–47 (2007)

    Google Scholar 

  30. Liu, Y.-J., Tsai, C.-L., Wang, M.-C., Zhu, N.: Prior consequences and subsequent risk taking: new field evidence from the Taiwan Futures Exchange. Manag. Sci. 56(4), 606–620 (2010)

    Article  Google Scholar 

  31. Longchamp, C.: Drei Reaktionsweisen im Spannungsfeld von Moderne und Tradition: Eine Analyse polit-kultureller Konflikte in der Schweiz am Vorabend der Expo. 02. GfS-Research Institute, Bern (2002)

  32. Lusardi, A., Mitchell, O.: The Economic Importance of Financial Literacy. NBER Working Paper 18952 (2013)

  33. McRae, K.: Conflict and Compromise in Multilingual Societies: Switzerland. Wilfried Laurier University Press, Waterloo (1983)

    Google Scholar 

  34. Miauton, M.H., Reymond, A.: Der nationale Zusammenhalt: Mythus oder Realität? Ansichten der Leader und der Bevölkerung. M.I.S. Trend S.A., Lausanne, Lausanne (1998)

    Google Scholar 

  35. Nisbett, R.E., Peng, K.P., Choi, I., Norenzayan, A.: Culture and systems of thought: holistic versus analytic cognition. Psychol. Rev. 108, 291–310 (2001)

    Article  Google Scholar 

  36. Nisbett, R.E.: The Geography of Thought. Free Press, New York (2003)

    Google Scholar 

  37. Odean, T.: Are investors reluctant to realize their losses? J. Finance 53, 1775–1798 (1998)

    Article  Google Scholar 

  38. Schiendorfer, A.: Switzerland: the end of uncertainty. Credit Suisse Bull. 5 (2013) https://doi.org/www.credit-suisse.com/us/en/articles/articles/news-and-expertise/2013/12/en/switzerland-the-end-of-uncertainty.html

  39. Shefrin, H., Statman, M.: The disposition to sell winners too early and ride losers too long: theory and evidence. J. Finance 40, 777–790 (1985)

    Article  Google Scholar 

  40. Spina, R.R., Ji, L.J., Guo, T., Zhang, Z., Ye, L., Fabrigar, L.: Cultural differences in the representativeness heuristic: expecting a correspondence in magnitude between cause and effect. Personal. Soc. Psychol. Bull. 36(5), 583–597 (2010)

    Article  Google Scholar 

  41. Stulz, R.M., Williamson, R.: Culture, openness, and finance. J. Financ. Econ. 70(3), 313–349 (2003)

    Article  Google Scholar 

  42. Summers, B., Duxbury, D.: Decision-dependent emotions and behavioral anomalies. Organ. Behav. Hum. Decis. Process. 118(2), 226–238 (2012)

    Article  Google Scholar 

  43. Tversky, A., Kahneman, D.: Availability: a heuristic for judging frequency and probability. Cogn. Psychol. 5(2), 207–232 (1973)

    Article  Google Scholar 

  44. Vulkan, N.: An economist’s perspective on probability matching. J. Econ. Surv. 14, 101–118 (2000)

    Article  Google Scholar 

  45. Wang, M., Fischbeck, P.S.: Similar in how to frame, but different in what to choose. Mark. Bull. 15, 13–24 (2004)

    Google Scholar 

  46. West, J., Graham, J.L.: A linguistic-based measure of cultural distance and its relationship to managerial values. Manag. Int. Rev. 44(3), 239–260 (2004)

    Google Scholar 

  47. Wright, G.N., Phillips, L.D.: Cultural variation in probabilistic thinking: alternative ways of dealing with uncertainty. Int. J. Psychol. 15(4), 239–257 (1980)

    Article  Google Scholar 

  48. Yates, J.F., Ronis, D., Wang, D.: Probability judgment accuracy: China, Japan and the United States. Organ. Behav. Hum. Decis. Process. 43, 145–171 (1989)

    Article  Google Scholar 

  49. Yates, J.F., Lee, J.-W., Shinotsuka, H., Patalano, A.L., Sieck, W.R.: Cross-cultural variations in probability judgment accuracy: beyond general knowledge overconfidence. Organ. Behav. Hum. Decis. Process. 74, 89–117 (1998)

    Article  Google Scholar 

Download references

Author information

Affiliations

Authors

Corresponding author

Correspondence to Thorsten Hens.

Additional information

We thank the Baloise Group for financial support in collecting the data. Comments provided by Christian Dreyer, Marc-Oliver Rieger, Mei Wang, Manish Gupta, Michal Dzielinski, the participants of the 2015 annual meeting of the Swiss Society of Economics and Statistics, and two anonymous referees are greatly appreciated.

Appendix

Appendix

A. Variable specifications

Financial income is the household’s net disposable income. We use the following equivalents:

  • \({\le }20{,}000\) Euro and \({\le }50{,}000\) Swiss franks

  • 20,000–50,000 Euro and 50,000–100,000 Swiss franks

  • 50,000–80,000 Euro and 100,000–150,000 Swiss franks

  • \({\ge }80{,}000\) Euro and 150,000 Swiss franks.

Financial wealth is the household’s net disposable wealth (without real estate) (e.g., cash, financial assets such as equities, bonds, funds, and pension savings such as 3a saving accounts used in Switzerland). We use the following equivalents:

  • \({\le }30{,}000\) Euro and \({\le }100{,}000\) Swiss franks

  • 30,000–70,000 Euro and 100,000–200,000 Swiss franks

  • 70,000–100,000 Euro and 200,000–300,000 Swiss franks

  • \({\ge }100{,}000\) Euro and 300,000 Swiss franks.

B. Further tests

Table 9 Correlations between questions
Table 10 Factor loadings after varimax rotation
Table 11 Summary statistics of weighted investment competence scale
Table 12 Differences in investment competence based on a weighted scale
Table 13 Regional differences in investment competence based on all questions

Rights and permissions

Reprints and Permissions

About this article

Verify currency and authenticity via CrossMark

Cite this article

Bachmann, K., Hens, T. Is there Swissness in investment decision behavior and investment competence?. Financ Mark Portf Manag 30, 233–275 (2016). https://doi.org/10.1007/s11408-016-0274-8

Download citation

Keywords

  • Behavioral finance
  • Investment mistakes
  • Cultural finance

JEL Classification

  • D19
  • Z10