The Psychology of Trading and Investing

Pitters, Julia; Oberlechner, Thomas

doi:10.1002/9781118813454.ch25

Cited by 7 publications

(5 citation statements)

References 45 publications

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“…EMH also describes that markets are fully efficient as all market information is already incorporated in current securities prices; therefore, new information or rigorous analysis should not result in additional trading in order to outperform a benchmark. The behavioral finance theory further explains that investors fail to process all market information because, just like the decision outcomes in other walks of life, trading decisions of investors may also be influenced by numerous psychological factors such as affect, cognition and heuristics (Pitters and Oberlechner, 2014).…”

Section: Introductionmentioning

confidence: 99%

Moderating influence of advisor personality on the association between financial advice and investor stock trading behavior

Tauni

Majeed

Mirza

et al. 2018

IJBM

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Purpose The purpose of this paper is to investigate the role of financial advice on investor trading behavior by analyzing the influence of advisor personality. Design/methodology/approach The study utilized the Big Five personality framework from Costa and McCrae (1992) to measure personality traits of advisors and examined the data collected from 314 stock investor–advisor dyads. Personality traits of advisors were measured by the NEO-Five Factor Inventory (Costa and McCrae, 1989). Confirmatory factor analysis was conducted to assess the fitness of the Big Five model. We followed two-stage least square method for estimating endogenous covariate by employing instrumental variable analysis. Probit model was used to evaluate the moderating influence of advisor personality traits on the association between the usage of financial advice and trading behavior. Findings The authors found that financial advice positively impacts investors’ stock trading frequency. The authors also provide empirical evidence that financial advice is more likely to increase trading frequency when advisor personality tends to be openness, conscientiousness and agreeableness. On the other hand, information acquired from financial advisors causes fewer adjustments in investors’ portfolios when the personality of advisors is likely to be extraverted and neurotic. Research limitations/implications The theoretical model in our study seeks to explain that a psychological factor, namely, advisor personality, influences the way an investor interprets information signals from financial advice, which, in turn, influences the investor’s decision to trade in securities. Practical implications This research suggests that characteristics of advisors other than those of investors can be of relevance for policy makers in their attempts to improve their business in the financial services industry. Originality/value Survey-based studies in finance are lacking. This study adds to the existing literature of behavioral finance that accounts for the observed variations in investors’ financial decision making explained by psychological factors. No previous study has been conducted so far exploring variations in the impact of financial advice on investors’ stock trading behavior by the Big Five advisor personality, and this paper strives to fill this research gap in Chinese stock market.

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Section: Introductionmentioning

confidence: 99%

Moderating influence of advisor personality on the association between financial advice and investor stock trading behavior

Tauni

Majeed

Mirza

et al. 2018

IJBM

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“…Day trading demands great concentration from the traders. They must watch dozens of quotes on screens and price fluctuations in split seconds and to spot market trends (Pitter & Oberlechner, 2014). The success of day trading depends very much on the experience and skills acquired.…”

Section: Literature Reviewmentioning

confidence: 99%

Characteristics and Strategies of a Consistently Profitable Proprietory Day Trader at Bursa Malaysia

Song

Chu

Lai

2018

MAR

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Proprietary day trading is relatively new in Malaysia. This study looks into the background characteristics, strategies, behaviour of an above average proprietary trader and factors that determined her success. Recent literature in the developed markets found that the majority of the day traders failed in the first year of trading. Few studies have looked into the winning characteristics and strategies of the traders. Contrary to the findings on failed traders, who traded actively, speculatively, and to their detriment, this case study found that a successful trader on the other hand is highly attentive and disciplined. On average the trader had executed approximately 20 counters per day for about 100 transactions. More than 50% of the roundtrips transactions were completed within half an hour and 70% were completed within 2 hours. The trader was most active in the morning for buy transactions and the majority of the roundtrips were completed in the afternoon. The trader usually holds large positions only for shorter periods to minimise huge losses and disposition effect. It was evident that the trader employs scalping strategies that she profits from very short run and small movement of prices rather than employing fundamental analysis which requires longer term investment horizon. If the trader made profits in the morning, the likelihood is the trader will be more aggressive in the afternoon trades. The regression results reveal that factors that significantly explained the profitability of the trader were the transaction values and the time entering the trades. Market sentiment and duration of holding time do not significantly explain the profitability made by the trader. It shows that in a bullish market, the trader tended to trade more transactions; however that does not contribute significantly to the profits made.

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“…The above conceptual framework is theoretically and empirically supported. Garling et al (2009) and Pitters and Oberlechner (2012) also conceptualize that cognitive biases, affective influence and social influence collectively affect investor behavior and induce stock market behavior. We provide the same conceptualization, but based on different theoretical underpinnings.…”

Section: Theorizing and Conceptualizing Institutional Investor Behavioral Biasesmentioning

confidence: 99%

Institutional investor behavioral biases: syntheses of theory and evidence

Ahmad

Ibrahim

Tuyon

2017

MRR

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Purpose This paper aims to review the theory and empirical evidence of institutional investor behavioral biases in the lenses of behavioral finance paradigm. It surveys the research specifically focusing on behavioral biases among institutional investors in investment management activities worldwide. Design/methodology/approach A literature survey is done to gather and synthesize evidence on behavioral biases of institutional investors. Findings The survey and analysis reveal the following findings. First, the theoretical underpinning of investors’ irrational behavior has been neglected in behavioral finance research. Second, the behavioral heuristics and biases are dynamic and complex. Third, understanding behavioral biases’ origin, causes and effects requires interdisciplinary perspectives from the fields of psychology, sociology and biology. Originality/value The analysis and alternative perspectives drawn in this paper provide new insights into the field of behavioral finance and aims to suggest researchers, practitioners and regulators on the next course of actions.

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The Psychology of Trading and Investing

Cited by 7 publications

References 45 publications

Moderating influence of advisor personality on the association between financial advice and investor stock trading behavior

Moderating influence of advisor personality on the association between financial advice and investor stock trading behavior

Characteristics and Strategies of a Consistently Profitable Proprietory Day Trader at Bursa Malaysia

Institutional investor behavioral biases: syntheses of theory and evidence

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