Do Superstitious Traders Lose Money?
Hong Kong University of Science & Technology - HKUST School of Business and Management
National Chengchi University (NCCU) - Department of International Business
University of Hong Kong - Faculty of Business and Economics
University of Hong Kong
August 23, 2014
Superstition, which is defined as a belief that is not based on reason, has been a part of the human condition since humans began. But does superstition adversely affect human welfare? We answer this question in the context of trading in the Taiwan Futures Exchange, where we exploit the Chinese superstition that the number “8” is lucky and the number “4” is unlucky. Defining a “superstition index” of a trader as the proportion of limit order submissions at prices ending at “8” minus the proportion of limit order submissions at prices ending at “4,” we find that individual investors are superstitious but institutional investors are not. Further, amongst individual investors, there is a negative correlation between trading profits and the superstition index. We find that these losses arise from poor trades at nearly all price points for a superstitious trader, not just at “8” and “4,” suggesting that superstition may be a symptom of a general cognitive disability in making financial decisions. Nevertheless, superstition does decrease as agents learn from trading.
Number of Pages in PDF File: 59
Keywords: superstition, cognitive abilities, limit order clustering, investment performance, individual investors
JEL Classification: D14, G02, G14, G15working papers series
Date posted: August 10, 2014 ; Last revised: August 29, 2014
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