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Individual Investors Look at Price Tags

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  • Fernando Chague
  • Rodrigo De Losso, Bruno Giovannetti

Abstract

We show that a stock price fall, in itself, induces individual investors to buy the stock. 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. Buying after price falls with no further analysis is harmful to investors since price falls tend to be followed by further price falls

Suggested Citation

  • Fernando Chague & Rodrigo De Losso, Bruno Giovannetti, 2018. "Individual Investors Look at Price Tags," Working Papers, Department of Economics 2018_17, University of São Paulo (FEA-USP).
    • Handle: RePEc:spa:wpaper:2018wpecon17
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    References listed on IDEAS

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    More about this item

    Keywords

    individual investors; cursed beliefs; prospect theory; contrarian behavior;
    All these keywords.

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G40 - Financial Economics - - Behavioral Finance - - - General
    • D84 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Expectations; Speculations

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