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Self-attribution bias and overconfidence among nonprofessional traders

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  • Czaja, Daniel
  • Röder, Florian

Abstract

We investigate consequences of the self-attribution bias for nonprofessional traders. By applying a textual analysis of more than 44,000 public comments on a large social trading platform, we contribute to empirical literature on investment and trading behavior in three ways: First, we show that one component of the self-attribution bias, the self-enhancement bias, leads to subsequent underperformance. Second, results support the theory that traders become overconfident due to biased self-enhancement. Third, we find that traders’ social trading portfolios attract higher investment flows from investors when showing self-enhancement biased behavior.

Suggested Citation

  • Czaja, Daniel & Röder, Florian, 2020. "Self-attribution bias and overconfidence among nonprofessional traders," The Quarterly Review of Economics and Finance, Elsevier, vol. 78(C), pages 186-198.
    • Handle: RePEc:eee:quaeco:v:78:y:2020:i:c:p:186-198
    DOI: 10.1016/j.qref.2020.02.003
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    Cited by:

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    2. Erdős, Sándor & Papp, Tamás & Vörös, Zsófia, 2022. "The effects of community-based signals on investment decisions in copy trading," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 97(C).
    3. Meier, Pascal Flurin & Flepp, Raphael & Meier, Philippe & Franck, Egon, 2022. "Outcome bias in self-evaluations: Quasi-experimental field evidence from Swiss driving license exams," Journal of Economic Behavior & Organization, Elsevier, vol. 201(C), pages 292-309.
    4. Zhou, Xinxing & Gao, Yan & Wang, Ping & Zhu, Bangzhu, 2022. "Examining the overconfidence and overreaction in China’s carbon markets," Economic Analysis and Policy, Elsevier, vol. 75(C), pages 472-489.
    5. Schneider, Julian & Oehler, Andreas, 2021. "Competition for visibility: When do (FX) signal providers employ lotteries?," International Review of Financial Analysis, Elsevier, vol. 78(C).
    6. Hsu, Yuan-Lin, 2022. "Financial advice seeking and behavioral bias," Finance Research Letters, Elsevier, vol. 46(PB).

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    More about this item

    Keywords

    Self-attribution bias; Overconfidence; Individual investors; Trading behavior; Social trading;
    All these keywords.

    JEL classification:

    • D14 - Microeconomics - - Household Behavior - - - Household Saving; Personal Finance
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G41 - Financial Economics - - Behavioral Finance - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making in Financial Markets

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