Does Overconfidence Harm Individual Investors? An Empirical Analysis of the Taiwanese Market

Ho, Chi Ming

doi:10.1111/j.2041-6156.2011.01053.x

Cited by 24 publications

(7 citation statements)

References 25 publications

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“…Another criterion used to rank and classify the overconfidence of investors is the actual average number of transactions proposed by Ho (2011). This measure consists of the division between total number of transactions and the actual number of active periods with transactions.…”

Section: Actual Average Number Of Transactionsmentioning

confidence: 99%

“…This measure consists of the division between total number of transactions and the actual number of active periods with transactions. Investors with frequent trading and investors with general trading will not be classified into the same group, which should mitigate the frequency of type I and type II errors Ho (2011). Ho (2011) proposes to replace the turnover rate with the actual average number of transactions -AANT:…”

Section: Actual Average Number Of Transactionsmentioning

confidence: 99%

“…However, a rational agent would have a comprehensive view of the portfolio and sell the stock that is least likely to do well in the future, without considering whether it is a winner or a loser. Disposition effect is a common irrational behaviour that investors exhibit in the stock market (Ho, 2011), and while prospect theory suggests the hypothesis that investors display a disposition to sell winners and ride losers, standard financial theory suggests the opposite (Shrefrin & Statman, 1984) DRAFT -DO NOT CITE OR DISTRIBUTE WITHOUT PERMISSION 11 Kahneman & Tversky (1979) offer an explanation for the disposition effect. These authors find that people express an attitude of risk aversion when facing profit, but a risk-seeking attitude when facing loss.…”

Section: Disposition Effectmentioning

confidence: 99%

“…This implies a relationship between both biases however there is not clear evidence about their relationship in terms of causation. Ho (2011) uses as depend variable the disposition effect which is explained by the level of overconfidence and other variables. One of the hypothesis is that the disposition effect is more significant in traders with higher degrees of overconfidence, and findings suggest that there is a difference in the disposition effect among investors with different levels of overconfidence and in fact, there is a positive correlation between the degrees of confidence and the disposition effect.…”

Section: Disposition Effectmentioning

confidence: 99%

See 3 more Smart Citations

Overconfidence and disposition effect in the stock market: A micro world based setting

Trejos

Deemen

Rodríguez

et al. 2019

Journal of Behavioral and Experimental Finance

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Modern financial theory relies on the rationality assumption of investors even though, evidence suggests that market investors are affected by behavioural biases such as overconfidence and disposition effect. Overconfident investors perceive situations better than what they actually are, while investors exhibiting disposition effect tend to dispose winner shares and keep loser ones. However there is not clear causal relationship between both biases. We contribute to the literature about overconfidence and its relationship with the disposition effect, using a simulation model often named micro world,representing an artificial financial stock market.Wepropose a methodology combining qualitative (QCA) and quantitative(Logistic Regression) techniques to correlate transactions' outcomes with investors' characteristics. Results suggest that overconfidence is explained by gender, career and education level, while age, nationality, and profits are not significant variables.We also confirm that investors exhibiting disposition effect are more prone to be overconfident.

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Section: Actual Average Number Of Transactionsmentioning

confidence: 99%

Section: Actual Average Number Of Transactionsmentioning

confidence: 99%

Section: Disposition Effectmentioning

confidence: 99%

Section: Disposition Effectmentioning

confidence: 99%

See 2 more Smart Citations

Overconfidence and disposition effect in the stock market: A micro world based setting

Trejos

Deemen

Rodríguez

et al. 2019

Journal of Behavioral and Experimental Finance

View full text Add to dashboard Cite

show abstract

“…The advantage of this approach is that the system equations can incorporate all of the variables into the equation, which has full use of the other information from the equations, to increase the explanatory power of this equation. For example, gender may have an impact on the disposition effect, and the ratio of sell orders (turnover rate) may also affect the disposition effect [32]. Additionally, because the herd effect will result in irrational trading behavior [4], social relationships may also affect the disposition effect.…”

Section: System Estimates Modelmentioning

confidence: 99%

The Effects of Social Interaction and Psychological Bias on Trading Behavior: Evidence from a Laboratory Experiment

Ho¹

2018

JMF

Self Cite

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This paper details an experiment designed to explore the trading behaviors of investors that result from psychological biases and social interactions. In total, 88 investors were tracked for 6 months and 40,795 transactions were recorded. The research conducted an experimental survey and estimated a system analysis model to generate several important conclusions. First, the degree of regret bias and the disposition effects are unrelated, probably because the professional training of investors and the disposition effects are not significantly related. Second, if investors are affected by contradictions arising from their decisions, then the likelihood that they will sell a stock will decrease as the investor relationships in the community improve and the regret bias increases. Third, male investors prefer to trade derivatives, and even after controlling for the degree of regret bias, this preference is still significant.

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Overconfidence bias in the Indian stock market in diverse market situations: an empirical study

Kumar

Prince

2022

Int J Syst Assur Eng Manag

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Does Overconfidence Harm Individual Investors? An Empirical Analysis of the Taiwanese Market

Cited by 24 publications

References 25 publications

Overconfidence and disposition effect in the stock market: A micro world based setting

Overconfidence and disposition effect in the stock market: A micro world based setting

The Effects of Social Interaction and Psychological Bias on Trading Behavior: Evidence from a Laboratory Experiment

Overconfidence bias in the Indian stock market in diverse market situations: an empirical study

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