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Uninformative Feedback and Risk Taking: Evidence from Retail Forex Trading

Author

Listed:
  • Ben-David, Itzhak

    (OH State University)

  • Birru, Justin

    (OH State University)

  • Prokopenya, Viktor

    (Swiss Business School)

Abstract

We document that retail day traders in the Forex market attribute random success to their own skill and, as a consequence, increase risk taking. Although past performance provides little information about future success for these traders, they increase leverage and trade concentration with gains, but not with losses. Furthermore, there is a large discontinuity in risk taking around zero past week returns: traders increase leverage dramatically following weeks of small gains, relative to weeks of small losses. The effects are stronger for novice traders, consistent with more intense "learning" in early trading periods.

Suggested Citation

  • Ben-David, Itzhak & Birru, Justin & Prokopenya, Viktor, 2015. "Uninformative Feedback and Risk Taking: Evidence from Retail Forex Trading," Working Paper Series 2014-17, Ohio State University, Charles A. Dice Center for Research in Financial Economics.
    • Handle: RePEc:ecl:ohidic:2014-17
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    Cited by:

    1. is not listed on IDEAS
    2. Hu, Xiao & Jin, Ye & Li, Yilin & Wu, Banggang, 2023. "Learning from credit default," Finance Research Letters, Elsevier, vol. 58(PD).
    3. Wenjun Wang, 2023. "Can experience mitigate precautionary bidding? Evidence from a quasi-experiment at an IPO auction," Journal of Asset Management, Palgrave Macmillan, vol. 24(2), pages 148-163, March.
    4. Kaourma, Theofilia & Milidonis, Andreas & Nishiotis, George & Panayides, Marios, 2025. "News and intraday retail investor order flow in foreign exchange markets," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 101(C).
    5. Soane, Emma & Aufegger, Lisa, 2024. "Changing risk-taking: the effects of tasks and incentives on the variability of risk-taking," LSE Research Online Documents on Economics 124339, London School of Economics and Political Science, LSE Library.

    More about this item

    JEL classification:

    • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
    • D40 - Microeconomics - - Market Structure, Pricing, and Design - - - General
    • L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation

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