Sub-optimal trading decisions and investment biases
Charles A. Dice Center Working Paper No. 2019-22
62 Pages Posted: 27 Sep 2019 Last revised: 28 Oct 2020
Date Written: October 25, 2020
We first provide evidence of some retail investors taking real trading (selling) decisions which are clearly sub-optimal even from an ex-ante perspective. We then show that these investors also exhibit stronger investment biases, namely, the disposition effect, underdiversification, preference for lottery-like stocks, likelihood of purchasing salient stocks, and extrapolation. Our study is the first to relate several well-known investment biases with a real ex-ante sub-optimal trading decision in the cross-section of retail investors.
Keywords: retail investors, sub-optimal decisions, behavioral biases, financial mistakes
JEL Classification: C93, D83, D91, G11, G12, G40, G41, H31
Suggested Citation: Suggested Citation