'Being in the Market': The UK House-Price Bubble and the Intended Structure of Individual Pension Investment Portfolios

Abstract

It is widely observed that being in the market gives financial traders access to knowledge and information not available to remote traders. A truism of the geography of finance, it is also a perspective that can shed light on the interaction between market location, global financial movements, and personal welfare. In this paper, we develop an explanation of the premium attached to being in the market, drawing upon previous contributions on the relevance of tacit knowledge and the insights provided by behavioural finance with respect to time-space myopia. To illustrate our model of 4 types of behaviour, mixing together various combinations of time and space conceptions of market performance, we analyse the intended retirement investment portfolios of nearly 2400 participants in a defined contribution pension plan sponsored by a London-based investment bank. Having demonstrated the empirical significance of the UK house-price bubble, respondents' retirement investment portfolios are analysed focusing upon the relative significance of property in relation to a range of other investment instruments. It is shown that, amongst similarly located respondents, there was a range of investment strategies dependent, in part, upon respondents' age, household status, job classification, and income. These results allow us to distinguish between different types of behaviour even amongst well-placed respondents, providing evidence of the co-existence of sophisticated, naive, and opportunistic investors against the base-case of time-space myopic behaviour. Implications are drawn for conceptualising a rapprochement between the insights of the behavioural revolution for economic geography (and in particular, the geography of finance) relevant for public policy.