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Uninformative Feedback and Risk Taking: Evidence from Retail Forex Trading

Charles A. Dice Center Working Paper No. 2014-17

Fisher College of Business Working Paper No. 2014-03-17

59 Pages Posted: 20 Dec 2014 Last revised: 29 Mar 2016

Itzhak Ben-David

Ohio State University - Fisher College of Business, Finance Department; National Bureau of Economic Research (NBER)

Justin Birru

Ohio State University (OSU) - Department of Finance

Viktor Prokopenya

Swiss Business School (SBS)

Multiple version iconThere are 2 versions of this paper

Date Written: March 28, 2016

Abstract

We document evidence consistent with retail day traders in the Forex market attributing random success to their own skill and, as a consequence, increasing risk taking. Although past performance does not predict future success for these traders, traders increase trade sizes, trade size variability, and number of trades with gains, and less with losses. There is a large discontinuity in all of these trading variables around zero past week returns: e.g., traders increase their trade size dramatically following winning weeks, relative to losing weeks. The effects are stronger for novice traders, consistent with more intense “learning” in early trading periods.

Keywords: Retail trading, futures, risk taking, overconfidence, self-attribution

JEL Classification: G02, G11, G32

Suggested Citation

Ben-David, Itzhak and Birru, Justin and Prokopenya, Viktor, Uninformative Feedback and Risk Taking: Evidence from Retail Forex Trading (March 28, 2016). Charles A. Dice Center Working Paper No. 2014-17; Fisher College of Business Working Paper No. 2014-03-17. Available at SSRN: https://ssrn.com/abstract=2540584 or http://dx.doi.org/10.2139/ssrn.2540584

Itzhak Ben-David (Contact Author)

Ohio State University - Fisher College of Business, Finance Department ( email )

2100 Neil Avenue
Fisher 700D
Columbus, OH 43210-1144
United States
773 988 1353 (Phone)

HOME PAGE: http://fisher.osu.edu/fin/faculty/Ben-David/index.htm

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

HOME PAGE: http://fisher.osu.edu/fin/faculty/Ben-David/

Justin Birru

Ohio State University (OSU) - Department of Finance ( email )

2100 Neil Avenue
Columbus, OH 43210-1144
United States

Viktor Prokopenya

Swiss Business School (SBS) ( email )

Zurich
Switzerland

HOME PAGE: http://www.vpcapital.com

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