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Skip to search form Skip to main content You are currently offline. Some features of the site may not work correctly. DOI: The proposition that investors are overconfident about their valuation and trading skills can explain high observed trading volume. With biased self-attribution, the level of investor overconfidence and thus trading volume varies with past returns.
We test the trading volume predictions of formal overconfidence models and find that share turnover is positively related to lagged returns for many months. View PDF. Save to Library. Create Alert. Launch Research Feed. Share This Paper. Background Citations. Methods Citations. Results Citations. Figures and Tables from this paper. Figures and Tables. Paper Mentions. Blog Post.
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Although the price increases are market wide, investors mistakenly attribute gains in wealth to their ability to pick stocks. Overconfident investors trade more.
Agrawal, D. Role of herding behavior in influencing investor decision making in India. Indian Journal of Research in Capital Markets, 3 4 , 43 - Chu, W.
This paper aims to show how overconfidence influences the decisions and performance of individual investors trading on the Pakistan Stock Exchange PSX , with the mediating role of risk perception and moderating role of financial literacy. The deductive approach was used, as the research is based on the theoretical framework of behavioural finance. A questionnaire and cross-sectional design were employed for data collection from the sample of individual investors trading on the PSX.
The proposition that investors are overconfident about their valuation and trading skills can explain high observed trading volume. With biased self-attribution, the level of investor overconfidence and thus trading volume varies with past returns. We test the trading volume predictions of formal overconfidence models and find that share turnover is positively related to lagged returns for many months. The relationship holds for both market-wide and individual security turnover, which we interpret as evidence of investor overconfidence and the disposition effect, respectively. Security volume is more responsive to market return shocks than to security return shocks, and both relationships are more pronounced in small-cap stocks and in earlier periods where individual investors hold a greater proportion of shares.
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