Academic study reveals strong performance of the less risk-averse investors, especially in frequent crises
Anxious investors are less likely to suffer large losses and go bankrupt according to a new academic study.
Researchers found that having a level of anxiety may offer protection from dramatic negative impacts on wealth in times of uncertainty, or during a crisis such as a global pandemic.
The Emlyon Business School study, led by Professor Brice Corgnet, revealed that investors who were more emotional offered lower bids and were less likely to suffer extreme losses and bankruptcy than their less emotional and more risk-taking counterparts.
These anxious investors were also more likely to see higher profits than their more risk-on counterparts when extreme events are more frequent.
The findings are counter to the view that investors should keep their emotions in check in times of crisis and not let them cloud their investment decisions.
Positive reward
“Many people will find it surprising that being anxious could improve investing, this is a complete contrast to what we are usually told – that those who are more likely to take risks will be more successful – and in normal circumstances that may be the case, but during uncertain times, being anxious is what could save your company,” explained Professor Corgnet.
In the experiment, participant’s emotions were monitored by electrodermal activity and were tasked with placing 300 successive bids to acquire a financial asset that offered a positive reward. These bids however also had the potential to have a large loss that could wipe out the participants accumulated earnings and bankrupt them.
