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The Price Tag Illusion

58 Pages Posted: 16 Nov 2017  

Fernando Chague

Getulio Vargas Foundation (FGV) - Sao Paulo School of Economics

Rodrigo De-Losso

University of Sao Paulo (USP) - Department of Economics

Bruno Giovannetti

Getulio Vargas Foundation (FGV) - Sao Paulo School of Economics

Date Written: November 14, 2017

Abstract

We find that a stock price fall in itself induces more individuals to buy the stock. Individuals are used to temporary sales in the goods market and have the illusion that buying a stock at a lower price is also a better deal. We call this illusion the “Price Tag Illusion” (PTI). To identify the PTI, we use two distinct events which generate “fictitious price falls.” The first is the mechanical stock price adjustment on ex-dividend dates. The second is the fluctuation of stock prices around integer numbers. The PTI can cause severe losses to individuals in the stock market.

Keywords: Individual Investors, Price Tag Illusion, Contrarian Behavior

JEL Classification: G11, G12, G40

Suggested Citation

Chague, Fernando and De-Losso, Rodrigo and Giovannetti, Bruno, The Price Tag Illusion (November 14, 2017). Available at SSRN: https://ssrn.com/abstract=3068390

Fernando Chague

Getulio Vargas Foundation (FGV) - Sao Paulo School of Economics ( email )

Rua Itapeva 474 s.1202
São Paulo, São Paulo 01332-000
Brazil

Rodrigo De-Losso

University of Sao Paulo (USP) - Department of Economics ( email )

Av. Prof. Luciano Gualberto 908
Sao Paulo SP, 05508-900
Brazil
551130916070 (Phone)

Bruno Giovannetti (Contact Author)

Getulio Vargas Foundation (FGV) - Sao Paulo School of Economics ( email )

Rua Itapeva, 474, 10o andar
Sao Paulo, Sao Paulo 01332000
Brazil

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