Technical analysis gives you courage, but not money-von the relationship between technical analisys usage, overconfidence and investment performance

Kubińska, Elżbieta; Czupryna, Marcin; Markiewicz, Łukasz; Czekaj, Jan

doi:10.15611/aoe.2018.1.14

Cited by 6 publications

(10 citation statements)

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“…Information overload occurs "when the information processing demands on an individual's time to perform interactions and internal calculations exceed the supply or capacity of time available for such processing" (Schick, Gorden, Haka, 1990, p. 199). Trading is done in an environment characterised by strong information load and it has been proved that traders exhibit an illusion of control in their investment decisions (Fenton-O'Creevy, Nicholson, Soane, Willman, 2003;Kubińska et al, 2018). We hypothesise that information overload causes an illusion of control, and sought to verify this in an experimental study.…”

Section: Introductionmentioning

confidence: 96%

“…It has been shown that overconfidence in the form of the illusion of control is a very strong bias among financial market professionals. This type of bias occurs more frequently with technical analysis usage (Kubińska, Czupryna, Markiewicz, Czekaj, 2018). Financial market professionals are influenced by the increasing amount of information they are confronted by, with enormous amounts of news that are not fundamental information but just a 'noise' (Black, 1986), leading to informational overload (Chewning, Harrell, 1990).…”

Section: Introductionmentioning

confidence: 99%

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The Illusion of Control and Information Overload within a Bayesian Updating Framework

Kubińska

Czupryna

Markiewicz

2017

PJOEP

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In this paper, the hypothesis that information overload causes the illusion of control is verified with Bayesian updating. Bayesian updating is considered the rationality model of individuals' perception of their impact on the process of generating results. Here, the Bayesian model of processing information, where different priors are applied, is validated. Information overload has been operationalised by introducing uncertainty about the function and parameter values of generating results. Streszczenie:W artykule za pomocą wnioskowania bayesowskiego została zweryfikowana hipoteza mówiąca o tym, że przeciążenie informacyjne zwiększa iluzję kontroli. Wnioskowanie bayesowskie jest uważane za racjonalny model, w ramach którego jednostki oceniają swój własny wpływ na proces generujący wyniki. W artykule weryfikujemy bayesowski model przetwarzania informacji poprzez zastosowanie różnych parametrów. Przeciążenie informacyjne zostało zoperacjonalizowane poprzez wprowadzenie niepewności co do funkcji i wartości parametrów procesu generującego wyniki. Słowa kluczowe: nadmierna pewność siebie, iluzja kontroli, przeciążenie informacyjne, wnioskowanie bayesowskie.

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Section: Introductionmentioning

confidence: 96%

Section: Introductionmentioning

confidence: 99%

The Illusion of Control and Information Overload within a Bayesian Updating Framework

Kubińska

Czupryna

Markiewicz

2017

PJOEP

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“…The weak form of the efficient market hypothesis suggests that the current price of a security reflects all currently available information, including previous prices (EF Fama, 1970). Such skepticism regarding TA is justified, studies showing that its use is not profitable (Aronson, 2011;Hsu, Hsu, & Kuan, 2010;Kubińska, Czupryna, Markiewicz, & Czekaj, 2018). More specifically, the idea that TA can generate extra profits is often lacking in terms of statistically significant evidence, and, even where such evidence is presented, it can easily be explained by data mining bias or post factum analysis.…”

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confidence: 99%

“…In addition to the issue of which mechanism underlies chartists' faith in TA, a no less important issue is that relating to the method's psychological concomitants. If TA does not result in systematic extra profits for its adherents (Kubińska et al, 2018), what benefits does it bring them? It must provide something since time and resources are invested in learning its techniques and in conducting analyses.…”

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confidence: 99%

“…An alternative mechanism would be one in which, in the absence of feedback regarding the correctness of TA pattern classifications, a person believe that they are a skillful TA practitioner, which in time may contribute to the development of overconfidence. Thus, based on the above premises and on the general prevalence of overconfidence among financial decision makers (Kubińska et al, 2018;Kubińska & Markiewicz, 2013), it would be expected that the mere act of categorizing charts can result in overconfidence among chartists. Given that overconfidence may be operationalized as a state where subjective accuracy is greater than objective accuracy (Moore & Healy, 2008), we assumed that chartists' overconfidence would be revealed through their perceptions of accuracy in recognizing TA signals being greater than objectively warranted.…”

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confidence: 99%

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The role of need for structure in technical analysis and how identifying information in price movements raises traders’ confidence

Markiewicz¹,

Czupryna²,

Kubińska³

2020

Decyzje

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Technical analysis (TA) is a tool believed to support investor's investment decisions. Even if research has demonstrated that TA cannot be used to make systematic profits over a long time period, it could potentially bring psychological payoffs to its users in the form of enhancing their confidence. In an experimental study we show that: (1) chartists demonstrate overconfidence in TA usage, believing that they are better than they actually are in TA formation recognition, and that; (2) the act of naming an observed trend as a TA formation brings extra confidence to the chartist, regardless of whether this is a real TA sequence or a random sequence. Thus, both naming an existing TA formation as a TA formation and naming a random sequence as a TA formation result in greater confidence.Also, irrespective of the high popularity of TA among investors, there are marked individual differences in TA followers. In a questionnaire study, we demonstrate that declared positive attitudes toward TA correlate positively with

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Impact of overconfidence bias in stock trading approach: a study of high net worth individual (HNI) stock investors in India

Parhi

Pal²

2021

BIJ

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PurposeThe purpose of the study is to check whether Indian high net worth individual (HNI) investors are suffering from overconfidence bias in personal life and in-stock investment approach. The study is to benchmark an ideal behaviour that an investor should exhibit under the overconfidence bias.Design/methodology/approachBoth qualitative and quantitative methods were used to study the Indian HNI investors with overconfidence bias. As a first step, an exploratory study was conducted to identify the variables to define overconfidence bias. An extensive literature review along with in-depth interviews was conducted amongst investors, fund managers and the subject experts to check the content validity of the variables. The survey instrument was designed based on the objective of the study and theoretical framework. Both descriptive and inferential statistical tools such as the Z proportion test, logistic regression and structural equation model were applied to test the hypotheses.FindingsIt was found that there is a moderate impact of overconfidence bias amongst the investors both in normal life and whilst making investments in stock. This study found the influence of overconfidence bias in stock investment with respect to forecasting of the stock price movements, overtrading, overanalysis and overreaction.Research limitations/implicationsThis paper will help in understanding the Indian HNI investors’ behaviour under the impact of overconfidence bias. There is an empirical study to understand the implication of overconfidence bias on stock investors specifically for the HNI investors.Practical implicationsThis study gives an insight into the fund managers to understand the Indian HNI investment behaviour. It is also helpful for HNI investors to understand and correct their behavioural biases related to overconfidence.Social implicationsThis paper will guide investors to understand the symptoms and repercussions of overconfidence bias in stock investment. They can also realize the subtle impact of overconfidence bias in personal and professional life, thus preventing them from making losses.Originality/valueThis work is the extension of the works of Terrace Odean on behavioural finance in the Indian Stock Investors' context. The concept of overconfidence bias and its implications of finance were developed by Kahneman and Tversky, and later by other behavioural finance researchers such as Malmendier, Hirshleifer, DeBondt, Odean, Barber, Shefrin and others. This paper studies stock investing behaviour with specific reference to Indian HNI investors.

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Technical analysis gives you courage, but not money-von the relationship between technical analisys usage, overconfidence and investment performance

Cited by 6 publications

References 50 publications

The Illusion of Control and Information Overload within a Bayesian Updating Framework

The Illusion of Control and Information Overload within a Bayesian Updating Framework

The role of need for structure in technical analysis and how identifying information in price movements raises traders’ confidence

Impact of overconfidence bias in stock trading approach: a study of high net worth individual (HNI) stock investors in India

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