Uninformative Feedback and Risk Taking: Evidence from Retail Forex Trading

59 Pages Posted: 11 Apr 2016

See all articles by Itzhak Ben-David

Itzhak Ben-David

Ohio State University (OSU) - Department of Finance; 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: April 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.

Suggested Citation

Ben-David, Itzhak and Birru, Justin and Prokopenya, Viktor, Uninformative Feedback and Risk Taking: Evidence from Retail Forex Trading (April 2016). NBER Working Paper No. w22146. Available at SSRN: https://ssrn.com/abstract=2762097

Itzhak Ben-David (Contact Author)

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

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

National Bureau of Economic Research (NBER) ( email )

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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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