What You Need to Know
- The negative connnotations of panic selling may “not always be warranted,” researchers conclude.
- Investors must get back into the market in time to capture the rebound, but nearly a third of them never return.
- Panic sales during falling markets are most common among men over 45 with dependents and those who say they have high levels of market knowledge, a study found.
Panic selling is a “rare event,” according to a new study by MIT Sloan School of Management researchers. That said, when it happens, it can impact investment accounts, but not always in the way commonly believed.
In the study, When Do Investors Freak Out? Machine Learning Predictions of Panic Selling, the researchers found that an average of 0.1% of investors are panic selling at any point in time. However — no surprise here — such sales happen more often during large market moves.
Close to 31% of panic sellers never reinvest the money in risky assets, while 58% reenter the market within half a year.
The study’s authors are Daniel Elkind and MIT’s Kathryn Kaminski, Andrew Lo, Kien Wei Siah and Chi Heem Wong.
Who is most likely to “freak out”? Men over 45, who are married or divorced and have dependents. They also describe themselves as having “excellent” or good knowledge of the market.
Typically, they are self-employed, business owners or in real estate. Those occupations least prone to panic selling are paralegals and social workers.