Abstract

http://ssrn.com/abstract=2478124
 


 



Do Superstitious Traders Lose Money?


Utpal Bhattacharya


Hong Kong University of Science & Technology - HKUST School of Business and Management

Weiyu Kuo


National Chengchi University (NCCU) - Department of International Business

Tse-Chun Lin


University of Hong Kong - Faculty of Business and Economics

Jing Zhao


University of Hong Kong

August 23, 2014


Abstract:     
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, G15

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Date posted: August 10, 2014 ; Last revised: August 29, 2014

Suggested Citation

Bhattacharya , Utpal and Kuo, Weiyu and Lin, Tse-Chun and Zhao, Jing, Do Superstitious Traders Lose Money? (August 23, 2014). Available at SSRN: http://ssrn.com/abstract=2478124

Contact Information

Utpal Bhattacharya
Hong Kong University of Science & Technology - HKUST School of Business and Management ( email )
Clear Water Bay
Kowloon
Hong Kong
Weiyu Kuo
National Chengchi University (NCCU) - Department of International Business ( email )
Taipei City
Taiwan
Tse-Chun Lin (Contact Author)
University of Hong Kong - Faculty of Business and Economics ( email )
Pok Fu Lam Road
Hong Kong
Hong Kong
+852 2857-8503 (Phone)
HOME PAGE: http://www.sef.hku.hk/people/faculty/tclin.html
Jing Zhao
University of Hong Kong ( email )
Room 908, K.K.L. Building
The University of Hong Kong, Pokfulam Road
Hong Kong
Hong Kong
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