Do Limit Orders Alter Inferences about Investor Performance and Behavior?
AbstractIndividual investors lose money around earnings announcements, experience poor posttrade returns, exhibit the disposition effect, and make contrarian trades. Using simulations and trading records of all individual investors in Finland, I find that these trading patterns can be explained in large part by investors' use of limit orders. These patterns arise mechanically because limit orders are price-contingent and suffer from adverse selection. Reverse causality from behavioral biases to order choices does not appear to explain my findings. I propose a simple method for measuring a data set's susceptibility to this limit order effect. Copyright (c) 2010 The American Finance Association.
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Bibliographic InfoArticle provided by American Finance Association in its journal The Journal of Finance.
Volume (Year): 65 (2010)
Issue (Month): 4 (08)
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- Yu, Hsin-Yi & Hsieh, Shu-Fan, 2010. "The effect of attention on buying behavior during a financial crisis: Evidence from the Taiwan stock exchange," International Review of Financial Analysis, Elsevier, vol. 19(4), pages 270-280, September.
- Ben-David, Itzhak & Hirshleifer, David, 2011. "Beyond the Disposition Effect: Do Investors Really Like Gains More Than Losses?," Working Paper Series 2011-13, Ohio State University, Charles A. Dice Center for Research in Financial Economics.
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