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The Price Tag Illusion

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Listed:
  • Fernando Chague
  • Rodrigo De Losso, Bruno Giovannetti

Abstract

We find that a stock price fall in itself induces more individuals to buy the stock. Used to temporary sales in the goods market, individuals have the illusion that buying a stock at a lower price is also a better deal, ignoring the fact that a price fall usually reflects negative news. We call this illusion the “Price Tag Illusion” (PTI). To identify the PTI, we use two distinct events which generate “fictitious price falls”. The first is the mechanical stock price adjustment on ex-dividend dates. The second is the fluctuation of stock prices around integer numbers. The PTI can cause severe losses to individuals in the stock market

Suggested Citation

  • Fernando Chague & Rodrigo De Losso, Bruno Giovannetti, 2017. "The Price Tag Illusion," Working Papers, Department of Economics 2017_31, University of São Paulo (FEA-USP).
    • Handle: RePEc:spa:wpaper:2017wpecon31
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    References listed on IDEAS

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    More about this item

    Keywords

    individual investors; price tag illusion; contrarian behavior;
    All these keywords.

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G40 - Financial Economics - - Behavioral Finance - - - General

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