The Price Tag Illusion
58 Pages Posted: 16 Nov 2017
Date Written: November 14, 2017
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: Suggested Citation