Individuals Neglect the Informational Role of Prices: Evidence from the Stock Market
65 Pages Posted: 16 Nov 2017 Last revised: 24 Mar 2018
Date Written: March 20, 2018
We find that a stock price fall in itself induces individual investors to buy the stock. That is, individuals neglect the negative information that may be attached to a stock price fall. Our identification strategy uses two distinct events which generate fictitious price falls. The first is the mechanical stock price adjustment on ex-dividend dates. The second explores the so-called left-digit effect, the well-documented empirical fact that individuals disproportionally focus on left digits when evaluating numbers. Our results contribute to the understanding of why people trade.
Keywords: individual investors, cursed beliefs, contrarian behavior, trading volume, left-digit effect
JEL Classification: G11, G12, G14, G40, D84
Suggested Citation: Suggested Citation