Investor overconfidence in experimental asset markets across market states

Chris Meier, Lurion De Mello*

*Corresponding author for this work

Research output: Contribution to journalArticle

3 Citations (Scopus)

Abstract

This study explores how individual overconfidence adjusts after receiving extreme feedback that either supports or contradicts previous decision-making when buying or selling stocks. We find that highly contradicting feedback causes overconfidence to vanish as confidence declines sharply while supportive signals cause overconfidence to increase. Further evidence suggests that strong feedback impulses are associated with higher investor disagreement, supporting prior hypotheses that investors interpret such impulses differently. We also find that methodologies that measure overconfidence in prediction tasks systematically overstate confidence scores as respondents tend to fail to internalize stated confidence intervals appropriately.

Original languageEnglish
Pages (from-to)369-384
Number of pages16
JournalJournal of Behavioral Finance
Volume21
Issue number4
Early online date25 Nov 2019
DOIs
Publication statusPublished - 1 Oct 2020

Keywords

  • Experimental methods
  • Investor disagreement
  • Investor overconfidence
  • Overconfidence
  • Overconfidence crash

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