IDEAS home Printed from https://ideas.repec.org/a/eme/rbfpps/v5y2013i2p104-133.html
   My bibliography  Save this article

Overconfidence, overreaction and personality

Author

Listed:
  • Robert Durand
  • Rick Newby
  • Kevin Tant
  • Sirimon Trepongkaruna

Abstract

Purpose - – The purpose of this paper is to systematically profile investors’ personality traits to examine if, and how, those traits are associated with phenomena observed in financial markets. In particular, the paper looks at overconfidence and overreaction in an experimental foreign exchange market. Design/methodology/approach - – The paper measures the personality of the subjects using the short form of the NEO-PIR instrument, the NEO-FFI developed by Costa and McRae (1992) which is based on Norman's (1963) “Big Five” personality constructs ofnegative emotion, extraversion, openness to experience, agreeablenessandconscientiousness. The paper measures psychological gender using questions developed by Bem (1994).Preference for innovationandrisk-taking propensityare measured using instruments developed by Jackson (1976). The paper then examines the behavior of the subject who traded interactively in “real time” in an interactive-simulated foreign exchange market where “price discovery” was instantaneous and pricing decisions were made instantaneously as items of news, determined by the researchers, were released. Findings - – The paper demonstrates that personality traits are associated with overconfidence and overreaction in financial markets. The paper presents meta-analysis which facilitates the development of a posteriori theories of how particular traits affect investment; there are important roles forrisk-taking propensity, negative emotion, extraversion, masculinity, preference for innovationandconscientiousness. Originality/value - – A typical behavioral finance paper might find an empirical regularity in prices and, on the basis of such patterns, infer the underlying psychology motivating the behavior of investors. The approach differs from this caricature of the “typical” behavioral finance paper. The paper does not infer the underlying psychology of investors from patterns in prices. Rather, the paper learns about investors by systematically profiling their personality traits. The paper then demonstrates how those traits are associated with the prices generated by the investors the authors study. In focussing on the role of individual personality, the paper refocusses behavioral finance on the individuals who set prices.

Suggested Citation

  • Robert Durand & Rick Newby & Kevin Tant & Sirimon Trepongkaruna, 2013. "Overconfidence, overreaction and personality," Review of Behavioral Finance, Emerald Group Publishing Limited, vol. 5(2), pages 104-133, November.
  • Handle: RePEc:eme:rbfpps:v:5:y:2013:i:2:p:104-133
    DOI: 10.1108/RBF-07-2012-0011
    as

    Download full text from publisher

    File URL: https://www.emerald.com/insight/content/doi/10.1108/RBF-07-2012-0011/full/html?utm_source=repec&utm_medium=feed&utm_campaign=repec
    Download Restriction: Access to full text is restricted to subscribers

    File URL: https://www.emerald.com/insight/content/doi/10.1108/RBF-07-2012-0011/full/pdf?utm_source=repec&utm_medium=feed&utm_campaign=repec
    Download Restriction: Access to full text is restricted to subscribers

    File URL: https://libkey.io/10.1108/RBF-07-2012-0011?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Safeer Ullah Khan & Mansi Wang & Ikram Ullah Khan & Xiang‐dong Liu, 2022. "Evaluating stock trading behaviour: Information sources nexus through intrinsic and extrinsic motivation," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 27(3), pages 2965-2976, July.
    2. Bekiros, Stelios & Jlassi, Mouna & Naoui, Kamel & Uddin, Gazi Salah, 2018. "Risk perception in financial markets: On the flip side," International Review of Financial Analysis, Elsevier, vol. 57(C), pages 184-206.
    3. Tauni, Muhammad Zubair & Yousaf, Salman & Ahsan, Tanveer, 2020. "Investor-advisor Big Five personality similarity and stock trading performance," Journal of Business Research, Elsevier, vol. 109(C), pages 49-63.
    4. Rzeszutek Marcin, 2015. "Personality Traits and Susceptibility to Behavioral Biases among a Sample of Polish Stock Market Investors," International Journal of Management and Economics, Warsaw School of Economics, Collegium of World Economy, vol. 47(1), pages 71-81, September.
    5. John R. Nofsinger & Corey A. Shank, 2019. "DEEP sleep: The impact of sleep on financial risk taking," Review of Financial Economics, John Wiley & Sons, vol. 37(1), pages 92-105, January.
    6. Amaral, Christopher & Kolsarici, Ceren, 2020. "The financial advice puzzle: The role of consumer heterogeneity in the advisor choice," Journal of Retailing and Consumer Services, Elsevier, vol. 54(C).
    7. Bellofatto, Anthony & Broihanne, Marie-Hélène & D'Hondt, Catherine, 2019. "Appetite for information and trading behavior," LIDAM Discussion Papers LFIN 2019002, Université catholique de Louvain, Louvain Finance (LFIN).
    8. Fatima Akhtar & K. S. Thyagaraj & Niladri Das, 2018. "Perceived Investment Performance of Individual Investors is Related to the Big-Five and the General Factor of Personality (GPF)," Global Business Review, International Management Institute, vol. 19(2), pages 342-356, April.
    9. Steven Shead & Robert B Durand & Stephanie Thomas, 2021. "Predicting price intervals under exogenously induced stress," PLOS ONE, Public Library of Science, vol. 16(9), pages 1-15, September.
    10. Rupali Misra & Sumita Srivastava & D. K. Banwet, 2019. "Are type B investors efficacious? Exploring role of personality in ambidextrous investment decision-making," DECISION: Official Journal of the Indian Institute of Management Calcutta, Springer;Indian Institute of Management Calcutta, vol. 46(1), pages 27-34, March.
    11. Tanuj Nandan & Kumar Saurabh, 2016. "Big-five personality traits, financial risk attitude and investment intentions: study on Generation Y," International Journal of Business Forecasting and Marketing Intelligence, Inderscience Enterprises Ltd, vol. 2(2), pages 128-150.
    12. Zheng, Xiaotian & Zhou, Youcheng & Iqbal, Sajid, 2022. "Working capital management of SMEs in COVID-19: role of managerial personality traits and overconfidence behavior," Economic Analysis and Policy, Elsevier, vol. 76(C), pages 439-451.
    13. Yogita Singh & Mohd. Adil & S. M. Imamul Haque, 2023. "Personality traits and behaviour biases: the moderating role of risk-tolerance," Quality & Quantity: International Journal of Methodology, Springer, vol. 57(4), pages 3549-3573, August.
    14. Jochen Becker & Josip Medjedovic & Christoph Merkle, 2019. "The Effect of CEO Extraversion on Analyst Forecasts: Stereotypes and Similarity Bias," The Financial Review, Eastern Finance Association, vol. 54(1), pages 133-164, February.
    15. Fawad Ahmad, 2020. "Personality traits as predictor of cognitive biases: moderating role of risk-attitude," Qualitative Research in Financial Markets, Emerald Group Publishing Limited, vol. 12(4), pages 465-484, June.
    16. Muhammad Nauman Sadiq, Raja Ased Azad Khan, 2019. "Impact of Personality Traits on Investment Intention: The Mediating Role of Risk Behaviour and the Moderating Role of Financial Literacy," Journal of Finance and Economics Research, Geist Science, Iqra University, Faculty of Business Administration, vol. 4(1), pages 1-18, March.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eme:rbfpps:v:5:y:2013:i:2:p:104-133. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Emerald Support (email available below). General contact details of provider: .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.