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Confidence and trading aggressiveness of naïve investors: effects of information quantity and consistency

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  • Steven D. Smith

    (University of Illinois at Urbana-Champaign)

Abstract

Advances in technology, as well as regulatory and legislative actions, have led to an increase in the quantity of information available to the public. This paper experimentally examines the effects of information quantity and consistency (or directional agreement) on the judgments and trading behavior of naïve investors, holding constant the quality (or predictive value) of information. In my experiment, investors receive accounting signals and make predictions and trading decisions for 24 separate firms. I find that increasing the quantity and consistency of information leads naïve investors to show greater judgment confidence and trading aggressiveness. Increased quantity reduces investors’ expected wealth in laboratory markets, while the effect of consistency on expected wealth depends on the relationship between the low- and high-quality signals investors receive. Results highlight possible unintended consequences of increased disclosure and suggest directions for future experimental and archival research.

Suggested Citation

  • Steven D. Smith, 2010. "Confidence and trading aggressiveness of naïve investors: effects of information quantity and consistency," Review of Accounting Studies, Springer, vol. 15(2), pages 295-316, June.
    • Handle: RePEc:spr:reaccs:v:15:y:2010:i:2:d:10.1007_s11142-009-9106-7
    DOI: 10.1007/s11142-009-9106-7
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    Keywords

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    JEL classification:

    • M41 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Accounting
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
    • C92 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Group Behavior
    • L15 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Information and Product Quality

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