Does Forecast Confidence Boost Trading? Exploring an Improved Forecast Certainty Measure

35 Pages Posted: 28 Dec 2017 Last revised: 29 Dec 2017

See all articles by Doron Sonsino

Doron Sonsino

Ben-Gurion University of the Negev; Center for Academic Studies

Yaron Lahav

Ben-Gurion University of the Negev

Amir Levkowitz

College of Management Academic Studies

Date Written: November 22, 2017

Abstract

While finance studies propose that forecast-confidence motivates trading, the experimental findings regarding the anticipated confidence-trading link are inconclusive and typically insignificant. Attempting to bridge the gap, we modify the standard interval forecasting task to measure the personal tendency for forecast-confidence directly. The modified task is utilized to test the confidence-trading correlations at the general, attitudinal level and in specific scenarios. The attitudinal test surprisingly reveals that forecast-confidence links with smaller inclination to churn stocks, although confidence in profitability boosts the willingness to buy particular stocks beyond the response to forecasts alone. The trait level correlation is brought by opposite personality and competence effects on confidence and trading.

Keywords: Forecast confidence, trading inclination, overprecision, personality

JEL Classification: C90, G11, G17

Suggested Citation

Sonsino, Doron and Sonsino, Doron and Lahav, Yaron and Levkowitz, Amir, Does Forecast Confidence Boost Trading? Exploring an Improved Forecast Certainty Measure (November 22, 2017). Available at SSRN: https://ssrn.com/abstract=3092379 or http://dx.doi.org/10.2139/ssrn.3092379

Doron Sonsino (Contact Author)

Ben-Gurion University of the Negev ( email )

1 Ben-Gurion Blvd
Beer-Sheba 84105, 84105
Israel

Center for Academic Studies ( email )

Ha-Yotsrim 2
Or Yehuda, 6021816
Israel

Yaron Lahav

Ben-Gurion University of the Negev ( email )

Department of Business Administration
P.O. Box 653
Beer Sheva 84105, 84105
Israel
972-8-6479738 (Phone)
972-8-6477691 (Fax)

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

Amir Levkowitz

College of Management Academic Studies ( email )

Elie Wiesel St 2
Rishon LeTsiyon
Israel

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