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I test the disposition effect, the tendency of investors to hold losing investments too long and sell winning investments too soon, by analyzing trading records for 10,000 accounts at a large discount brokerage house. These investors demonstrate a strong preference for realizing winners rather than losers. Their behavior does not appear to be motivated by a(More)
Theoretical models predict that overconn dent investors trade excessively. We test this prediction by partitioning investors on gender. Psychological research demonstrates that, in areas such as nance, men are more overconn dent than women. Thus, theory predicts that men will trade more excessively than women. Using account data for over 35,000 households(More)
Trading volume on the world's markets seems high, perhaps higher than can be explained by models of rational markets. For example , the average annual turnover rate on the New York Stock Exchange (NYSE) is currently greater than 75 percent 1 and the daily trading volume of foreign-exchange transactions in all currencies (including forwards, swaps, and spot(More)
People are overconfident. Overconfidence affects financial markets. How depends on who in the market is overconfident and on how information is distributed. This paper examines markets in which price-taking traders, a strategic-trading insider, and risk-averse marketmakers are overconfident. Overconfidence increases expected trading volume, increases market(More)
We test and confirm the hypothesis that individual investors are net buyers of attention-grabbing stocks, e.g., stocks in the news, stocks experiencing high abnormal trading volume, and stocks with extreme one-day returns. Attention-driven buying results from the difficulty that investors have searching the thousands of stocks they can potentially buy.(More)
We develop a multiperiod market model describing both the process by which traders learn about their ability and how a bias in this learning can create overconfident traders. A trader in our model initially does not know his own ability. He infers this ability from his successes and failures. In assessing his ability the trader takes too much credit for his(More)
We test a catering theory describing how stock market mispricing might influence individual firms' investment decisions. We use discretionary accruals as our proxy for mispricing. We find a positive relation between abnormal investment and discretionary accruals; that abnormal investment is more sensitive to discretionary accruals for firms with higher R&D(More)
T he Internet is changing how information is delivered to investors and the ways in which investors can act on that information. It has lowered both the fixed and marginal costs of producing financial services, thus enabling newer, smaller companies to challenge established providers of these services. On-line brokerage firms, such as E*Trade and(More)