Overconfidence and emotion regulation failure: How overconfidence leads to the disposition effect in consumer investment behaviour

Chu, Wujin; Im, Meeja; Jang, Hyun-Kyu

doi:10.1057/fsm.2012.7

Cited by 17 publications

(17 citation statements)

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“…Overconfident investors expect low risks and high returns when investing, but this is not guaranteed. Palomino and Sadrieh (2011) and Chu et al (2012) noted that overconfident investors engaged in stock transactions that negatively affected returns. McCannon et al (2016) found that overconfident investors made risky investment decisions.…”

Section: Overconfidence and Investment Decisionsmentioning

confidence: 99%

The roles of financial literacy and overconfidence in investment decisions in Saudi Arabia

2022

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Financial literacy has gained much attention amongst scholars, policymakers and other stakeholders due to its role in backing up investment decisions, improving personal financial management and increasing financial wellbeing. This study examines the influence of financial literacy on investment decisions with the moderating effect of the overconfidence behavioural bias. Data were collected from 180 respondents in Saudi Arabia using a questionnaire, and a convenience sampling technique was applied. The study’s findings were analysed using the partial least squares structural equation modelling (PLS-SEM) technique. It was found that financial literacy positively and significantly influenced investment decisions. Moreover, the results show that overconfidence positively affected investment decisions and that the relationship between financial literacy and investment decisions was positively and significantly moderated by overconfidence.

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Section: Overconfidence and Investment Decisionsmentioning

confidence: 99%

The roles of financial literacy and overconfidence in investment decisions in Saudi Arabia

2022

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“…This may be particularly true for retail investors. Furthermore, Chu et al (2012) suggest that overconfidence (trading excessively and unnecessarily) results in a stronger disposition effect, thus highlighting a positive relation between the two biases. Chou and Wang (2011) demonstrate that, subject to positive prior returns, both overconfidence and the disposition effect act in unison and are responsible for a surge in trading volume.…”

Section: Lde In Profit and Price: The Combined Effectmentioning

confidence: 95%

Towards a better understanding of the full impact of the left digit effect on individual trading behaviour: unearthing a trading profit effect

Kansara

Sung

et al. 2020

The European Journal of Finance

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Investors' perceptions of price have been shown to be disproportionately affected by the leftmost digit(s). However, a similar left digit effect (LDE) in relation to another important determinant of investors' behaviour (i.e. trading profit) has not been explored. We examine over 7,314,570 million trades made by 25,766 individuals and find a LDE in profit that is 1.71 times stronger than that related to closing price; suggesting that individuals focus more on left digits in profit than price when deciding when to close a trade. In addition, we observe a positive synergistic relationship between the LDE related to profit and price, suggesting that its total influence may result in losses of billions of dollars per financial year for investors. We suggest that these results make a strong case for educating investors against this bias.

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“…Prior research suggests that a firm’s strategies are generally influenced by the prior experiences of top executives and directors at other firms and that these experiences result in the development of particular interpretations regarding specific corporate strategies ( Chatterjee and Hambrick, 2007 , 2011 ; Wales et al, 2013 ). The more overconfident an individual is, the less likely he or she is to accept criticism, opinions of others, or be influenced by others ( Moore and Healy, 2008 ; Chu, 2012 ). Therefore, the more overconfident the CEO, the less likely the CEO will be influenced by other board members’ prior experiences ( Zhu and Chen, 2015 ).…”

Section: Literature Review and Hypotheses Developmentmentioning

confidence: 99%

The Effect of Chief Executive Officer and Board Prior Corporate Social Responsibility Experiences on Their Focal Firm’s Corporate Social Responsibility: The Moderating Effect of Chief Executive Officer Overconfidence

et al. 2022

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This research aims to examine how the prior experiences of the chief executive officer (CEO) and board influence the focal firm’s Corporate Social Responsibility (CSR) activities. Further, the present study examines how CEO overconfidence influences the diffusion of CSR activities. The authors theorize that overconfident CEOs are influenced more by the corporate strategies they experienced on other boards and less by the corporate strategies experienced by other directors. Through longitudinal analyses of the CSR profiles a sample of S&P 500 companies for the period 2006-2013, the study shows that CEO and board prior CSR experience are positively related to the firm’s current CSR activities. The authors find a significant positive moderating effect of CEO overconfidence on the relationship between CEO prior CSR and the focal firm’s CSR. The theory and results highlight how CEO and board prior CSR exposure may influence the focal firm’s stances toward CSR and that CEO overconfidence may have differential effects on these relationships.

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Overconfidence and emotion regulation failure: How overconfidence leads to the disposition effect in consumer investment behaviour

Cited by 17 publications

References 50 publications

The roles of financial literacy and overconfidence in investment decisions in Saudi Arabia

The roles of financial literacy and overconfidence in investment decisions in Saudi Arabia

Towards a better understanding of the full impact of the left digit effect on individual trading behaviour: unearthing a trading profit effect

The Effect of Chief Executive Officer and Board Prior Corporate Social Responsibility Experiences on Their Focal Firm’s Corporate Social Responsibility: The Moderating Effect of Chief Executive Officer Overconfidence

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