University of Oulu, 2016

Public Defence: Tuomo Haapalainen

Friday, October 19, 2018

The doctoral dissertation of M.Sc. Tuomo Haapalainen (Finance) “Essays on the effects of past gains on subsequent risk-taking and stock returns” will be publicly examined at the Oulu Business School on Friday, October 19, 2018 at 12:00 (noon).

The public defence will be held in the University of Oulu, Linnanmaa campus in lecture room L10 (OP-hall).

Opponent: Assistant Professor Sami Torstila (Aalto University)
Custos: Professor Jukka Perttunen (Oulu Business School)

Academic dissertation


This dissertation contributes to the research on behavioral biases among individual investors by demonstrating how investors increase their portfolio volatility, i.e., risk, following favorable outcomes. This work also shows the influence of the first investment on subsequent risk-taking preferences. It also shows how stock prices, through unrealized capital gains, create an evident momentum effect following both bull and bear markets. The work is quite new because house money, quasi-hedonic editing rules and mental accounting are not frequently used in the financial literature. The data used are from the Finnish Central Securities Depository (FCSD), which is unique in the financial research literature.

The results of the first essay indicate that individual investors purchase stocks that increase portfolio risk or volatility after a period of negative market returns. These results propose that investors attribute these returns to themselves. Therefore, they are supporting a self-attribution bias. Ergo, investors gamble with their winnings over the next investment session. This behavior is consistent with the house money effect, which has not been before analyzed in the background of the stock market. Inexperienced investors are particularly prone to this effect.

The second essay investigates the effect of the outcome of the first investment on subsequent risk-taking preferences, which has not been previously analyzed in the context of financial markets. The database allows for analyses of new investors making their first stock market investment. The results show that in first or subsequent investments the win effect is stronger. The effect in the first investment situation results in higher volatility. Therefore, the result suggests that realized money is more likely to be risked in the situation of the first stock than in the situation of the other stocks.

The third essay, using a technique not before applied to research regarding momentum asymmetry, shows that deviations from the holdings- or volume-based reference price, i.e., the so-called capital gains overhang, can account for momentum. The results propose that after accounting for the disposition effect, overconfidence and biased self-attribution are not able to explain momentum asymmetry.

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Event location

L10 (OP hall)

Event address

Pentti Kaiteran katu 1, 90014 Oulu, Finland

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Last updated: 30.10.2019