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Uninformative Feedback and Risk Taking: Evidence from Retail Forex Trading

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  • 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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    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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