The Role of Beliefs in Trading Decisions

22 Pages Posted: 24 May 2017 Last revised: 1 Mar 2018

See all articles by Daniel Grosshans

Daniel Grosshans

University of Zurich - Department of Banking and Finance

Ferdinand Langnickel

University of Zurich, Department of Banking and Finance

Stefan Zeisberger

Radboud University; University of Zurich

Date Written: February 22, 2018

Abstract

We provide evidence that people fail to consistently incorporate their beliefs into trading decisions. The results of our laboratory experiment show that selling decisions are much less belief-driven than buying decisions. Interestingly, this difference is entirely driven by selling decisions in the presence of paper losses for which we observe that the belief-sensitivity is reduced by half. Selling decisions for paper gains are as sensitive to beliefs as buying decisions. Additionally, we find that people have more optimistic beliefs in face of a loss than when their position is at a gain.

Keywords: Behavioral Finance, Experimental Finance, Individual Investors, Trading Behavior, Belief Formation

JEL Classification: G11, G17

Suggested Citation

Grosshans, Daniel and Langnickel, Ferdinand and Zeisberger, Stefan, The Role of Beliefs in Trading Decisions (February 22, 2018). Available at SSRN: https://ssrn.com/abstract=2972112 or http://dx.doi.org/10.2139/ssrn.2972112

Daniel Grosshans

University of Zurich - Department of Banking and Finance ( email )

Plattenstrasse 32
Zürich, 8032
Switzerland

Ferdinand Langnickel (Contact Author)

University of Zurich, Department of Banking and Finance ( email )

Schönberggasse 1
Zurich
Switzerland

Stefan Zeisberger

Radboud University ( email )

Nijmegen
Netherlands

University of Zurich ( email )

Zürich
Switzerland

Register to save articles to
your library

Register

Paper statistics

Downloads
284
rank
102,251
Abstract Views
1,048
PlumX Metrics