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Individuals neglect the informational role of prices: evidence from the stock market

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  • Chague, Fernando Daniel
  • Bueno, Rodrigo de Losso da Silveira
  • Giovannetti, Bruno Cara

Abstract

We find that a stock price fall in itself induces individual investors to buy the stock. That is, individuals neglect the negative information that may be attached to a stock price fall. Our identification strategy uses two distinct events which generate fictitious price falls. The first is the mechanical stock price adjustment on ex-dividend dates. The second explores the so-called left-digit effect, the well-documented empirical fact that individuals disproportionally focus on left digits when evaluating numbers. Our results contribute to the understanding of why people trade.

Suggested Citation

  • Chague, Fernando Daniel & Bueno, Rodrigo de Losso da Silveira & Giovannetti, Bruno Cara, 2018. "Individuals neglect the informational role of prices: evidence from the stock market," Textos para discussão 467, FGV EESP - Escola de Economia de São Paulo, Fundação Getulio Vargas (Brazil).
    • Handle: RePEc:fgv:eesptd:467
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    References listed on IDEAS

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    Cited by:

    1. Justin Birru & Fernando Chague, Rodrigo De-Losso, Bruno Giovannetti, 2019. "Attention and Biases: Evidence from Tax-Inattentive Investors," Working Papers, Department of Economics 2019_48, University of São Paulo (FEA-USP).
    2. Zehao Liu & Chengbo Xie, 2023. "Haircuts, interest rates, and credit cycles," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 76(1), pages 69-109, July.

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