The Impact of Salience on Investor Behavior: Evidence from a Natural Experiment
Journal of Finance, forthcoming
87 Pages Posted: 14 Aug 2017 Last revised: 14 Jan 2019
Date Written: January 11, 2019
We test whether the display of information causally affects investor behavior in a high stakes trading environment. Using investor level brokerage data from China and a natural experiment, we estimate the impact of a shock that increased the salience of a stock’s purchase price, but did not change the investor’s information set. We employ a difference-in-differences approach and find that the salience shock causally increased the disposition effect by 17%. We use microdata to document substantial heterogeneity across investors in the treatment effect. A previously documented trading pattern, the “rank effect,” explains heterogeneity in the change in the disposition effect.
Keywords: Household Finance, Disposition Effect, Salience, Attention, Investor Behavior
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