Do Superstitious Traders Lose Money?
Hong Kong University of Science & Technology (HKUST) - HKUST School of Business and Management
National Chengchi University (NCCU) - Department of International Business
The University of Hong Kong - Faculty of Business and Economics
The Hong Kong Polytechnic University - School of Accounting and Finance
March 22, 2016
27th Australasian Finance and Banking Conference 2014 Paper
Do superstitious traders lose money? 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. We find that individual investors, but not institutional investors, submit disproportionately more limit orders at “8” than at “4”. This imbalance, defined as the “superstition index,” is positively correlated with trading losses. These losses are robust after controlling for a series of symptoms of financial unsophistication, such as wealth, cognitive limitation, disposition effect, and past performance. Nevertheless, superstition does decrease with trading experience.
Number of Pages in PDF File: 65
Keywords: superstition, financial sophistication, limit order clustering, investment performance, individual investors
JEL Classification: D14, G02, G14, G15
Date posted: August 10, 2014 ; Last revised: March 22, 2016
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