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On the Impacts of Overconfidence under Information Diversity

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  • Deqing Zhou
  • Fang Zhen

Abstract

This work examines the competition between two groups of overconfident agents when they are informed with different dimensional information. Their strategies could be complementary through a “liquidity improvement effect.” When agents informed in one‐dimension trade more aggressively due to overconfidence, the market liquidity could be improved and agents informed in the other dimension would also trade more aggressively and become better off. In addition, increasing one group's population and information precision could also benefit the other group, while these impacts are mitigated by the overestimation of one's own group population.

Suggested Citation

  • Deqing Zhou & Fang Zhen, 2021. "On the Impacts of Overconfidence under Information Diversity," International Review of Finance, International Review of Finance Ltd., vol. 21(1), pages 345-357, March.
    • Handle: RePEc:bla:irvfin:v:21:y:2021:i:1:p:345-357
    DOI: 10.1111/irfi.12264
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    References listed on IDEAS

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