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

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