IDEAS home Printed from https://ideas.repec.org/a/spr/reaccs/v15y2010i2d10.1007_s11142-009-9106-7.html
   My bibliography  Save this article

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

Author

Listed:
  • 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
    as

    Download full text from publisher

    File URL: http://link.springer.com/10.1007/s11142-009-9106-7
    File Function: Abstract
    Download Restriction: Access to the full text of the articles in this series is restricted.
    File URL: https://libkey.io/10.1007/s11142-009-9106-7?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

    for a different version of it.

    References listed on IDEAS

    as
    1. Warren Bailey & Haitao Li & Connie X. Mao & Rui Zhong, 2003. "Regulation Fair Disclosure and Earnings Information: Market, Analyst, and Corporate Responses," Journal of Finance, American Finance Association, vol. 58(6), pages 2487-2514, December.
    2. Camerer, Colin & Weber, Martin, 1992. "Recent Developments in Modeling Preferences: Uncertainty and Ambiguity," Journal of Risk and Uncertainty, Springer, vol. 5(4), pages 325-370, October.
    3. Bloomfield, Robert & Libby, Robert & Nelson, Mark W., 1999. "Confidence and the welfare of less-informed investors," Accounting, Organizations and Society, Elsevier, vol. 24(8), pages 623-647, November.
    4. Bloomfield, Robert & Libby, Robert & Nelson, Mark W., 2000. "Underreactions, overreactions and moderated confidence," Journal of Financial Markets, Elsevier, vol. 3(2), pages 113-137, May.
    5. Robert J. Bloomfield & Robert Libby & Mark W. Nelson, 2003. "Do Investors Overrely on Old Elements of the Earnings Time Series?," Contemporary Accounting Research, John Wiley & Sons, vol. 20(1), pages 1-31, March.
    6. Mark W. Nelson & Susan D. Krische & Robert J. Bloomfield, 2003. "Confidence and Investors' Reliance on Disciplined Trading Strategies," Journal of Accounting Research, John Wiley & Sons, Ltd., vol. 41(3), pages 503-523, June.
    7. Dan Lovallo & Colin Camerer, 1999. "Overconfidence and Excess Entry: An Experimental Approach," American Economic Review, American Economic Association, vol. 89(1), pages 306-318, March.
    8. W. Brooke Elliott & Frank D. Hodge & Kevin E. Jackson, 2008. "The Association between Nonprofessional Investors' Information Choices and Their Portfolio Returns: The Importance of Investing Experience," Contemporary Accounting Research, John Wiley & Sons, vol. 25(2), pages 473-498, June.
    9. Potter, G, 1992. "Accounting Earnings Announcements, Institutional Investor Concentration, And Common-Stock Returns," Journal of Accounting Research, John Wiley & Sons, Ltd., vol. 30(1), pages 146-155.
    10. Brad M. Barber & Terrance Odean, 2000. "Trading Is Hazardous to Your Wealth: The Common Stock Investment Performance of Individual Investors," Journal of Finance, American Finance Association, vol. 55(2), pages 773-806, April.
    11. Ou, Jane A. & Penman, Stephen H., 1989. "Financial statement analysis and the prediction of stock returns," Journal of Accounting and Economics, Elsevier, vol. 11(4), pages 295-329, November.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Daniel, Kent & Hirshleifer, David & Teoh, Siew Hong, 2002. "Investor psychology in capital markets: evidence and policy implications," Journal of Monetary Economics, Elsevier, vol. 49(1), pages 139-209, January.
    2. Hales, Jeffrey, 2009. "Are investors really willing to agree to disagree? An experimental investigation of how disagreement and attention to disagreement affect trading behavior," Organizational Behavior and Human Decision Processes, Elsevier, vol. 108(2), pages 230-241, March.
    3. Martin, Rachel, 2019. "Examination and implications of experimental research on investor perceptions," Journal of Accounting Literature, Elsevier, vol. 43(C), pages 145-169.
    4. Dennis Dittrich & Werner Guth & Boris Maciejovsky, 2005. "Overconfidence in investment decisions: An experimental approach," The European Journal of Finance, Taylor & Francis Journals, vol. 11(6), pages 471-491.
    5. Robert M. Gillenkirch & Achim Hendriks & Susanne A. Welker, 2014. "Effects of Executive Compensation Complexity on Investor Behaviour in an Experimental Stock Market," European Accounting Review, Taylor & Francis Journals, vol. 23(4), pages 625-645, December.
    6. Miranda-Lopez, Jose E. & Nichols, Linda M., 2012. "The use of earnings and cash flows in investment decisions in the U.S. and Mexico: Experimental evidence," Journal of International Accounting, Auditing and Taxation, Elsevier, vol. 21(2), pages 198-208.
    7. Aneta Tomescu & Cezar Laurentiu Tomescu & Rodica Sîrbu, 2020. "Inovative Surgical Treatment for Intratubal Administration of Methotrexate," European Journal of Medicine and Natural Scinces Articles, Revistia Research and Publishing, vol. 3, ejmn_v3_i.
    8. Abdul Hamid Habbe, 2017. "Estimation Error of Earnings Information: A Test of Representativeness and Anchoring-adjustment Heuristic," International Journal of Economics and Financial Issues, Econjournals, vol. 7(1), pages 224-233.
    9. Justin Downs, 2021. "Information gathering by overconfident agents," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 30(3), pages 554-568, August.
    10. Robert Gazzale & Julian Jamison & Alexander Karlan & Dean Karlan, 2013. "Ambiguous Solicitation: Ambiguous Prescription," Economic Inquiry, Western Economic Association International, vol. 51(1), pages 1002-1011, January.
    11. Oberlechner, Thomas & Osler, Carol, 2012. "Survival of Overconfidence in Currency Markets," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 47(1), pages 91-113, February.
    12. repec:grz:wpsses:2020-04 is not listed on IDEAS
    13. John R. Becker–Blease & Jeffrey E. Sohl, 2011. "The Effect of Gender Diversity on Angel Group Investment," Entrepreneurship Theory and Practice, , vol. 35(4), pages 709-733, July.
    14. Raman Uppal & Harjoat Bhamra, 2016. "Do Individual Behavioral Biases Affect Financial Markets and the Macroeconomy?," 2016 Meeting Papers 1358, Society for Economic Dynamics.
    15. Baginski, Stephen P. & Demers, Elizabeth & Kausar, Asad & Yu, Yingri Julia, 2018. "Linguistic tone and the small trader," Accounting, Organizations and Society, Elsevier, vol. 68, pages 21-37.
    16. Helen X. H. Bao & Steven Haotong Li, 2016. "Overconfidence And Real Estate Research: A Survey Of The Literature," The Singapore Economic Review (SER), World Scientific Publishing Co. Pte. Ltd., vol. 61(04), pages 1-24, September.
    17. Deaves, Richard & Lüders, Erik & Schröder, Michael, 2010. "The dynamics of overconfidence: Evidence from stock market forecasters," Journal of Economic Behavior & Organization, Elsevier, vol. 75(3), pages 402-412, September.
    18. John R. Graham & Campbell R. Harvey & Hai Huang, 2009. "Investor Competence, Trading Frequency, and Home Bias," Management Science, INFORMS, vol. 55(7), pages 1094-1106, July.
    19. Anderson, Anders & Baker, Forest & Robinson, David T., 2017. "Precautionary savings, retirement planning and misperceptions of financial literacy," Journal of Financial Economics, Elsevier, vol. 126(2), pages 383-398.
    20. Daniela Cagno & Daniela Grieco, 2023. "Insurance Choices and Sources of Ambiguity," Italian Economic Journal: A Continuation of Rivista Italiana degli Economisti and Giornale degli Economisti, Springer;Società Italiana degli Economisti (Italian Economic Association), vol. 9(1), pages 295-319, March.
    21. David Hirshleifer, 2001. "Investor Psychology and Asset Pricing," Journal of Finance, American Finance Association, vol. 56(4), pages 1533-1597, August.

    More about this item

    Keywords

    ;
    ;
    ;
    ;
    ;

    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

    Statistics

    Access and download statistics

    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:spr:reaccs:v:15:y:2010:i:2:d:10.1007_s11142-009-9106-7. 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.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with 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: Sonal Shukla or Springer Nature Abstracting and Indexing (email available below). General contact details of provider: http://www.springer.com .

    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.