Owls, Larks, or Investment Sharks?
Research Paper Title:
“Owls, larks, or investment sharks? The role of circadian process in early-stage investment decisions”
Authors:
Cristiano Guarana (Indiana University, Kelley School of Business)
Regan Stevenson (Indiana University, Kelley School of Business)
J. Jeffrey Gish (University of Central Florida)
Ji Woon Ryu (Indiana University, Kelley School of Business)
Rohan Crawley (Purdue University)
Background:
There is very limited understanding of how time-based factors can sway investment decisions. Understanding how the circadian process impacts early-stage investment holds implications for optimal investment decisions. This research hypothesizes and finds that investors are influenced by the time of day they make early-stage investment decisions. Although there is an abundance of prior work on how investors make structured decisions based on their experience and expertise, there is a very limited understanding of how time-based factors can sway investment decisions. The researchers build on social cognitive theory and propose that investor-level factors (i.e., chronotypes) and environmental factors (time of the day) interact to influence the amount of information investors search for, and consequently, their investment decisions.
Methodology:
Sample: active followers of several leading equity crowdfunding platforms in the US (1), business school students (2), equity crowdfunding investors (3) equity crowdfunding investors (from a different source). Investors had an average of 14.84 years of investment experience
Sample Size: 82 (study one), 205 (study two), 297 (study three)
Analytical Approach: experimental field study
Hypothesis:
Hypothesis 1 (Supported): Circadian alignment positively influences early-stage investment decisions. Specifically, lark investors will make better investment decisions early in the morning than late at night, and owl investors will make better investment decisions late at night than early in the morning.
Hypothesis 2 (Supported): Information search effort mediates the effect of circadian alignment on early-stage investment decisions.
Results:
Owl investors invested more than lark investors in an unsuccessful venture in the morning, whereas lark investors invested more than owl investors in an unsuccessful venture in the evening.
Circadian alignment is related to early-stage investment decisions in the equity crowdfunding context.
Investor chronotype and time of day interact to influence investment decisions, supporting Hypothesis 1. Larks performed better in the early-stage investment task when making investments in the morning, whereas owls performed better in the early-stage investment task when making investments in the evening.
In support of the authors’ predictions, they found that alignment between an investors chronotype and time of day that he/she evaluates an early-stage investment opportunity affects decision quality via information search effort.
Conclusion:
Equity crowdfunding investors may lack investing knowledge and also face several other challenges including time of day constraints. Misalignment between time of day and an individual’s chronotype could have negative consequences on investment decisions. The results of this study indicate that circadian process can influence the amount of information investors search for and, consequently, the quality of their investment decisions.