Information Cherry-Picking: When Confirmation Bias Met Anchoring Bias
59 Pages Posted: 4 Dec 2022
Date Written: November 15, 2022
We hypothesize that a surge in availability of information coupled with investors’ confirmation bias could aggravate retail investors’ behavioral biases due to their cherry-picking of information that only confirms their priors. We use the staggered EDGAR implementation to provide causal inference for our hypothesis. We find that retail investors’ anchoring tendency is amplified in the post-EDGAR period. The effect is most evident shortly after the release of corporate 10K/Q reports, for Internet users and sophisticated investors, and among stocks with higher information uncertainty. The exacerbated anchoring bias in the post-EDGAR period also makes retail investors lose more money in trading.
Keywords: EDGAR implementation, Confirmation bias, Anchoring bias, 52-week highs, Information cherry-picking, Information uncertainty
JEL Classification: D14; D83; D91; G12; G14; G38; G41
Suggested Citation: Suggested Citation