History Matters: How Short-Term Price Charts Hurt Investment Performance

44 Pages Posted: 13 Jan 2021 Last revised: 23 Mar 2021

See all articles by Charlotte Borsboom

Charlotte Borsboom

Radboud University Nijmegen

Dirk-Jan Janssen

Radboud University Nijmegen - Department of Economics

Markus Strucks

Radboud University Nijmegen - Institute for Management Research

Stefan Zeisberger

Radboud University, Institute for Management Research; University of Zurich, Department of Banking and Finance

Date Written: March 23, 2021

Abstract

When making investment decisions, people heavily rely on price charts displaying the past performance of an asset. Price charts can come with any time frame, which might be strategically chosen by the provider. We analyze the impact of the time frame on retail investor behavior, particularly trading activity and risk-taking in a controlled experiment with 1,041 retail investors. We find that shorter time frames are associated with more trading activity, resulting in higher transaction fees and welfare losses for investors. The time frame has no effect on average risk-taking, and thereby we question the transferability of myopic loss aversion findings to real-world investment settings.

Keywords: behavioral finance, experimental finance, investor behavior, price charts, display horizons, risk-taking, myopic loss aversion, overtrading

JEL Classification: D14, D18, G11, G41

Suggested Citation

Borsboom, Charlotte and Janssen, Dirk-Jan and Strucks, Markus and Zeisberger, Stefan, History Matters: How Short-Term Price Charts Hurt Investment Performance (March 23, 2021). Available at SSRN: https://ssrn.com/abstract=3722819 or http://dx.doi.org/10.2139/ssrn.3722819

Charlotte Borsboom

Radboud University Nijmegen ( email )

Postbus 9108
Nijmegen, 6500 HK
Netherlands

Dirk-Jan Janssen

Radboud University Nijmegen - Department of Economics ( email )

Nijmegen, 6500 HK
Netherlands

Markus Strucks

Radboud University Nijmegen - Institute for Management Research ( email )

Nijmegen
Netherlands

Stefan Zeisberger (Contact Author)

Radboud University, Institute for Management Research ( email )

Nijmegen
Netherlands

University of Zurich, Department of Banking and Finance ( email )

Z├╝rich
Switzerland

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