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Information, Overconfidence and Trading: Do the Sources of Information Matter?

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  • Margarida Abreu
  • Victor Mendes

Abstract

We investigate how the strength of the positive association between frequency of trading and information acquisition is dependent on investors’ self-confidence and on the sources of information used by investors. Our results confirm that the more frequently individual investors invest in information, the more they trade in financial products. Our results also confirm previous findings that overconfident investors, who show a better than average bias, trade more frequently. In this paper, we add to this literature by investigating if the strong and positive relationship between investment in information and intensity of trading in financial assets is sensitive to the sources of information used by investors, and if this influence is different for overconfident and non-overconfident investors. We conclude that overconfident investors trade more frequently when they collect information directly using specialized sources and that nonoverconfident investors trade less frequently when they use professional advice from the bank/account manager.

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File URL: http://pascal.iseg.utl.pt/~depeco/wp/wp252011.pdf
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Bibliographic Info

Paper provided by ISEG - School of Economics and Management, Department of Economics, University of Lisbon in its series Working Papers Department of Economics with number 2011/25.

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Date of creation: Nov 2011
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Handle: RePEc:ise:isegwp:wp252011

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Postal: Department of Economics, ISEG - School of Economics and Management, University of Lisbon, Rua do Quelhas 6, 1200-781 LISBON, PORTUGAL
Web page: https://aquila1.iseg.ulisboa.pt/aquila/departamentos/EC

Related research

Keywords: Information; overconfidence; investor behaviour; trading; sources of information Classification-G11; G14; D83;

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References

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  1. Joël Peress, 2004. "Wealth, Information Acquisition, and Portfolio Choice," Review of Financial Studies, Society for Financial Studies, vol. 17(3), pages 879-914.
  2. Campbell, John & Calvert, Lauren E. & Sodini, Paolo, 2009. "Fight or Flight? Portfolio Rebalancing by Individual Investors," Scholarly Articles 2617031, Harvard University Department of Economics.
  3. Nicolosi, Gina & Peng, Liang & Zhu, Ning, 2009. "Do individual investors learn from their trading experience?," Journal of Financial Markets, Elsevier, vol. 12(2), pages 317-336, May.
  4. Charlotte Christiansen & Juanna Schröter Joensen & Jesper Rangvid, 2007. "Are Economists More Likely to Hold Stocks?," CREATES Research Papers 2007-08, School of Economics and Management, University of Aarhus.
  5. Jeffrey R. Brown & Zoran Ivkovich & Paul A. Smith & Scott Weisbenner, 2007. "Neighbors Matter: Causal Community Effects and Stock Market Participation," NBER Working Papers 13168, National Bureau of Economic Research, Inc.
  6. Elena Argentese & Helmut Luetkepohl & Massimo Motta, 2006. "Acquisition of information and share prices: An empirical investigation of cognitive dissonance," Economics Working Papers ECO2006/32, European University Institute.
  7. Daniel Dorn & Gur Huberman, 2005. "Talk and Action: What Individual Investors Say and What They Do," Review of Finance, Springer, Springer, vol. 9(4), pages 437-481, December.
  8. Daniel Dorn & Paul Sengmueller, 2009. "Trading as Entertainment?," Management Science, INFORMS, INFORMS, vol. 55(4), pages 591-603, April.
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