IJMB Journal – Abstracts
International Journal of Management and Business
IJMB Volume IV, Issue 1
Learning from Disruptive Market Events: A Study of Financial Advisor Behavior
Philipp A. Hensler*, Tony Lingham, Ph.D, Sheri Perelli, D.M.
Case Western Reserve University
philipphensler@mac.com
ABSTRACT
The static portfolio construction process, while an efficient, rational and stunningly successful strategy for allocating client assets in well behaved markets, may prove less so in disruptive markets when active financial advisor intervention may be necessary. The literature is silent about how financial advisors learn from market dislocations and how market dislocations affect their asset allocation practices. Semi-structured interviews with 30 senior US financial advisors yielded insights about their allocation decisions prior to and after the 2008 financial crisis. Post crisis persistence in beliefs and behaviors are attributable to an enduring belief in recurring historic patterns, unwavering reliance on traditional model assumptions and active time horizon management. Furthermore, striking differences in cognitive capacity and perceived locus of control distinguish the post-2008 practice of most financial advisors from the relatively few who have adopted more dynamic portfolio management approaches.
Findings should be of interest not only to financial industry professionals but to the clients who rely on their advice.
Keywords: Financial crisis, financial advisors, disruptive event, individual learning, organizational learning.
Click for full manuscript (PDF) or back to Volume 4-1, Table of Content.