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

See all articles by Cary Frydman

Cary Frydman

University of Southern California - Marshall School of Business

Baolian Wang

University of Florida - Department of Finance, Insurance and Real Estate

Date Written: January 11, 2019

Abstract

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

Suggested Citation

Frydman, Cary and Wang, Baolian, The Impact of Salience on Investor Behavior: Evidence from a Natural Experiment (January 11, 2019). Journal of Finance, forthcoming, Available at SSRN: https://ssrn.com/abstract=3017406 or http://dx.doi.org/10.2139/ssrn.3017406

Cary Frydman (Contact Author)

University of Southern California - Marshall School of Business ( email )

701 Exposition Blvd
Los Angeles, CA 90089
United States

Baolian Wang

University of Florida - Department of Finance, Insurance and Real Estate ( email )

314 Stuzin Hall
Gainesville, FL 32611
United States

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

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