Download This PaperThe 'Write' Size of Trading Behavior: Overconfidence, Prices, and Bubbles in Experimental Asset Markets
37 Pages Posted: 15 Jul 2018 Last revised: 12 Oct 2020
Date Written: June 1, 2018
Abstract
This study analyzes the role that overconfidence plays in investor trading behavior. Using a unique measure of confidence (signature size) with an experimental economics approach, we find that those who are more confident bid significantly higher for assets in simulated trading exercises. This is consistent with previous research that overconfident individuals put too much weight on private signals and/or valuations. We further find that markets with a higher percentage of overconfident individuals experience more mispricing and more overpricing.
Keywords: trading behavior; overconfidence; mispricing
JEL Classification: G02; G12
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