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Attention and Biases: Evidence from Tax-Inattentive Investors

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  • Justin Birru
  • Fernando Chague, Rodrigo De-Losso, Bruno Giovannetti

Abstract

We provide evidence of investor inattention to a very simple and well-known tax exemption opportunity in the Brazilian stock market. Attentive and inattentive investors are similar along the dimensions of portfolio size and number of trades, but inattentive investors exhibit stronger behavioral biases and worse trading performance. The results hold even among high-activity investors who trade large volumes. The results are consistent with inattention being a common cause of behavioral biases.

Suggested Citation

  • 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).
  • Handle: RePEc:spa:wpaper:2019wpecon48
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    More about this item

    Keywords

    retail investors; behavioral inattention; stock-picking performance; behavioral biases; heuristics; bunching; financial mistakes;
    All these keywords.

    JEL classification:

    • C93 - Mathematical and Quantitative Methods - - Design of Experiments - - - Field Experiments
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
    • D91 - Microeconomics - - Micro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G40 - Financial Economics - - Behavioral Finance - - - General
    • G41 - Financial Economics - - Behavioral Finance - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making in Financial Markets
    • H31 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - Household

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