Overconfidence and (Over)Trading: The Effect of Feedback on Trading Behavior

Bregu, Klajdi

doi:10.1016/j.socec.2020.101598

Cited by 16 publications

(6 citation statements)

References 32 publications

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“…Glaser and Weber (2007) defined better than average as the ability to think of themselves as above others. These positive illusions of people are making them overconfident in their trading behavior (Bregu, 2020;Parmitasari and Syariati, 2022;Alp Coskun et al, 2023). Investors often assume they are better than a certain group when the accuracy of the returns rises, which encourage them to engage in excessive trading (Dorfleitner and Scheckenbach, 2022;ul Abdin et al, 2022).…”

Section: Positive Illusionmentioning

confidence: 99%

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Specifying and validating overconfidence bias among retail investors: a formative index

Nair,

Shiva

2023

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PurposeThe study explored various dimensions of overconfidence bias (OB) among retail investors in Indian financial markets. Further, these dimensions were validated through formative assessments for OB.Design/methodology/approachThe study applied exploratory factor analysis (EFA) to 764 respondents to explore dimensions of OB. These were validated with formative assessments on 489 respondents by the partial least square path modeling (PLS-PM) approach in SmartPLS 4.0 software.FindingsThe major findings of EFA explored four dimensions for OB, i.e. accuracy, perceived control, positive illusions and past investment success. The formative assessments revealed that positive illusions followed by past investment success among retail investors played an instrumental role in orchestrating the OBs that affect investment decisions in financial markets.Practical implicationsThe formative index of OB has several practical implications for registered financial and investment advisors, bank advisors, business media companies and portfolio managers, besides individual investors in the domain of behavioral finance.Originality/valueThis research provides a novel approach to provide a formative index of OB with four dimensions. This formative index can acts as an overview for upcoming researchers to investigate the OB of retail individual investors.Highlights Overconfidence bias is an important predictor of retail investors' behaviorFormative dimensions of the overconfidence bias index.Accuracy, perceived control, positive illusions and past investment success are important dimensions of overconfidence bias.Modern portfolio theory and illusion of control theory support this study.

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Section: Positive Illusionmentioning

confidence: 99%

Section: Theoretical Background and Hypothesis Developmentmentioning

confidence: 99%

Specifying and validating overconfidence bias among retail investors: a formative index

Nair,

Shiva

2023

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“…First, the disposition effect explains only the unidirectional nature of trading behaviour. Bregu (2020) and Gupta et al (2018) scrutinized the impact of the disposition effect on trading and argued that trading driven by the disposition effect is the underlying cause of the momentum effect. Second, the disposition effect is usually specific to individual stocks, and many empirical studies on the disposition effect have been based on the effect of individual investors' trading behaviour on specific individual stocks.…”

Section: Studies On Overconfidencementioning

confidence: 99%

Gauging the effect of investor overconfidence on trading volume from the perspective of the relationship between lagged stock returns and current trading volume

Huang

Wang

Fan

et al. 2022

International Finance

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Is investor overconfidence a major source of stock‐market trading volume? This study refers to the work of Grossman and Odean, introduces the assumption of investor overconfidence and empirically examines the influence of investor overconfidence on market trading volume in China's A‐share market through a vector autoregressive model estimation and Granger causality test. We find that overconfidence and self‐attribution exist in China's A‐share market. When the market is on an upswing, investors attribute large returns to the accuracy of their private information and the quality of their investment abilities; thus they trade more frequently, causing trading volume to increase more quickly. Conversely, when the market is on a downswing, investors attribute their investment losses to uncontrollable external factors; thus they become unwilling to trade, causing trading volume to shrink rapidly.

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“…Este, que é um dos vieses comportamentais mais bem definidos pela literatura (Bregu, 2020), pode ser considerado o viés comportamental de maior impacto nas decisões (Friehe & Pannenberg, 2019), porque a confiança controla a ação, ou seja, o comportamento do indivíduo (Griffin & Tversky, 1992). Além de ser um comportamento apresentado pela maioria das pessoas (Bhandari & Deaves, 2006), o excesso de confiança afeta também os analistas financeiros, ao se considerar que, os indivíduos tornam-se mais confiantes quando estão diante de uma situação complexa (Barber & Odean, 2002) que necessita de opiniões de especialistas (Bier, 2004).…”

Section: Excesso De Confiançaunclassified

“…Além de ser um comportamento apresentado pela maioria das pessoas (Bhandari & Deaves, 2006), o excesso de confiança afeta também os analistas financeiros, ao se considerar que, os indivíduos tornam-se mais confiantes quando estão diante de uma situação complexa (Barber & Odean, 2002) que necessita de opiniões de especialistas (Bier, 2004). Neste sentido, a tomada de decisão de um investidor pode ser realizada influenciada pelo excesso de confiança dos analistas e este pode ser um dos motivos pelo qual estudos acadêmicos concluem que este viés afeta negativamente os lucros dos investidores (Bregu, 2020), levando a resultados abaixo do ideal (Bhandari & Deaves, 2006).…”

Section: Excesso De Confiançaunclassified

Fatores comportamentais determinantes da acurácia da previsão de lucro dos analistas financeiros

Paula

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pelo incentivo, ensinamentos e tempo direcionados ao longo do meu curso. Sua dedicação e amor à pesquisa foram essenciais para meu aprendizado e sucesso na conclusão deste trabalho. Aos meus irmãos, Priscila e Abimael pelo estímulo e apoio para esta conquista e a toda minha família pela compreensão às ausências necessárias ao longo do curso. Aos professores do programa de Pós-Graduação em Controladoria e Contabilidade da Faculdade de Economia, Administração e Contabilidade, pelo aprendizado proporcionado e, aos os funcionários da secretaria pelo apoio durante todo o curso. E a todos que, de forma direta ou indireta, colaboraram para que este trabalho pudesse ser concluído. RESUMO PAULA, A. M. (2023). Fatores comportamentais determinantes da acurácia da previsão de lucro dos analistas financeiros (

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Overconfidence and (Over)Trading: The Effect of Feedback on Trading Behavior

Cited by 16 publications

References 32 publications

Specifying and validating overconfidence bias among retail investors: a formative index

Specifying and validating overconfidence bias among retail investors: a formative index

Gauging the effect of investor overconfidence on trading volume from the perspective of the relationship between lagged stock returns and current trading volume

Fatores comportamentais determinantes da acurácia da previsão de lucro dos analistas financeiros

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