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Overconfidence, position size, and the link to performance

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Forman, John and Horton, Joanne (2019) Overconfidence, position size, and the link to performance. Journal of Empirical Finance, 53 . pp. 291-309. doi:10.1016/j.jempfin.2019.08.001

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Official URL: http://dx.doi.org/10.1016/j.jempfin.2019.08.001

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Abstract

The overconfidence literature employs activity metrics such as account turnover and trade frequency to link misattribution/self-attribution to excess trading. In this paper we argue relative position size is a more meaningful indicator of overconfidence. Using a sample of retail traders, we find that when traders take relatively larger positions they make more impaired trade entry/exit timing decisions. The opposite is seen when they trade more frequently. We also observe that more sophisticated and experienced traders trade relatively smaller positions and exhibit less overconfidence, consistent with these individuals suffering fewer behavioral biases, for which a likely learning effect is observed.

Item Type: Journal Article
Subjects: H Social Sciences > HD Industries. Land use. Labor
H Social Sciences > HF Commerce
Divisions: Faculty of Social Sciences > Warwick Business School > Accounting
Faculty of Social Sciences > Warwick Business School
Library of Congress Subject Headings (LCSH): Confidence -- Economic aspects, Decision making, Retail trade, Performance, Turnover (Business)
Journal or Publication Title: Journal of Empirical Finance
Publisher: Elsevier
ISSN: 0927-5398
Official Date: September 2019
Dates:
DateEvent
September 2019Published
6 August 2019Available
4 August 2019Accepted
Volume: 53
Page Range: pp. 291-309
DOI: 10.1016/j.jempfin.2019.08.001
Status: Peer Reviewed
Publication Status: Published
Access rights to Published version: Restricted or Subscription Access

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