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Researchers at the Massachusetts Institute of Technology are looking at the demographics of people who panic and sell stocks in a stock market crash.

Investors who are men, over 45, married or who consider themselves to have “excellent investment experience” are more likely to “panic” and empty their portfolios during downturns, according to an article published in the month. last who analyzed more than 600,000 brokerage accounts.

Markets have already seen massive sell-offs, but none have been driven by a public health crisis as severe as the coronavirus. Credit:The New York Times

The researchers say their work can be used to create predictive models, which would help identify those at risk for panic selling.

“Financial advisers have a long history of advising their clients to stay calm and weather any temporary financial storm in their portfolios,” wrote Daniel Elkind, Kathryn Kaminski, Andrew Lo and their colleagues. “Despite this, a percentage of investors tend to panic and sell a large portion of their risky assets.”

The extreme emotional swings of a stock investor have long fascinated behavior scientists. While the MIT study did not explore why exactly investors panic, the intense fear and desire to give up and exit the market is well known to any trader.

Countless studies have shown that it is better for people to stay in a large and diverse portfolio, but the promise of great wealth and the dread of losing it all continue to lead to frantic trading patterns.

In the study, researchers defined a panic sale as a 90% drop in assets in a household account over the course of a month, of which 50% or more is due to transactions.

“Panic sales are not random events,” the researchers wrote, saying it was possible to identify clear trends in the data. They found that specific types of investors, such as those with less than $ 20,000 in their portfolio, also tend to liquidate more often.

“Subtle models of portfolio history, past market movements and demographic profile can be harnessed by deep neural networks to accurately predict whether an investor will panic in the near future,” they added.

– Washington Post.

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