Sign Matters: Stock Movement Based Trading Decisions of Private Investors

Stefan Muhl, Marc Oliver Rieger and Hung Ling Chen

No 2020-01, Working Paper Series from University of Trier, Research Group Quantitative Finance and Risk Analysis

Abstract: This paper studies the relation between the sign of recent returns (anup-down-pattern) and sell and buy decisions of private investors. For our comprehensive data set of Taiwanese private stock market investors we find two striking trading patterns:First, a stock pattern with predominantly positive days triggers significantly more tradesby private investorsthan a pattern with many negative days. Second, following positive days, privateinvestors sell proportionally more stocks than they buy. These results still hold when controlling for returns, absolute returns and stock index returns. To explain this behavior of simultaneously rising or falling buy and sell trades, we construct a simple behavioral model of potential sellersandbuyers. We assume that both groups initially have different expectationstowards their respective sharesand update these before their final decision while observing the price pattern. Together with the well-documented disposition effect, this model can explain the key results and also the observed gender differences.

Keywords: nvestment behavior; trading decisions; trend following; contrarian; price patterns (search for similar items in EconPapers)
JEL-codes: G1 G11 G12 (search for similar items in EconPapers)
Pages: 26 pages
Date: 2020
New Economics Papers: this item is included in nep-mst
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

Downloads: (external link)
https://www.uni-trier.de/fileadmin/fb4/prof/BWL/FI ... apers/QFRA_20-01.pdf First version, 2020 (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:trr:qfrawp:202001

Access Statistics for this paper

More papers in Working Paper Series from University of Trier, Research Group Quantitative Finance and Risk Analysis Contact information at EDIRC.
Bibliographic data for series maintained by Artem Dyachenko ( this e-mail address is bad, please contact ).