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The Conflicting Links between Forecast-Confidence and Trading Propensity

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  • Doron Sonsino
  • Yaron Lahav
  • Amir Levkowitz

Abstract

While finance studies suggest that forecast-confidence motivates trading, the experimental findings regarding the confidence-trading links are inconclusive and statistically weak. Attempting to bridge the gap, we modify the standard interval forecasting task to measure forecast-confidence more directly. The adapted task is utilized to test the confidence-trading correlations at the attitudinal level and in specific scenarios. The attitudinal test surprisingly reveals that forecast-confidence negatively correlates with the inclination to churn one’s stock portfolio, although confidence in profitability indeed boosts the willingness to trade particular stocks. The attitudinal correlation is endogenous, brought by opposite personality and competence effects on confidence and trading.

Suggested Citation

  • Doron Sonsino & Yaron Lahav & Amir Levkowitz, 2021. "The Conflicting Links between Forecast-Confidence and Trading Propensity," Journal of Behavioral Finance, Taylor & Francis Journals, vol. 22(4), pages 443-460, October.
    • Handle: RePEc:taf:hbhfxx:v:22:y:2021:i:4:p:443-460
    DOI: 10.1080/15427560.2020.1792911
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