Uninformative Feedback and Risk Taking: Evidence from Retail Forex Trading
Charles A. Dice Center Working Paper No. 2014-17
59 Pages Posted: 20 Dec 2014 Last revised: 29 Mar 2016
Date Written: March 28, 2016
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: Suggested Citation