Uninformative Feedback and Risk Taking: Evidence from Retail Forex Trading*

Two methods of reducing overconfidence

Itzhak Ben-David, Justin Birru and Viktor Prokopenya

Review of Finance, 2018, vol. 22, issue 6, 2009-2036

Abstract: We document evidence consistent with retail traders in the Forex market attributing random success to their own skill and, as a consequence, increasing risk taking. Although past performance does not predict future success for these traders, traders increase trade sizes, trade size variability, and number of trades with gains, and less with losses. There is a large discontinuity in all of these trading variables around zero past week returns: e.g., traders increase their trade size dramatically following winning weeks, relative to losing weeks. The effects are stronger for novice traders, consistent with more intense “learning” in early trading periods.

Keywords: Retail trading; Futures; Risk taking; Overconfidence; Self-attribution (search for similar items in EconPapers)
JEL-codes: G02 G11 G32 (search for similar items in EconPapers)
Date: 2018
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Citations: View citations in EconPapers (3)

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Related works:
Working Paper: Uninformative Feedback and Risk Taking: Evidence from Retail Forex Trading (2016)
Working Paper: Uninformative Feedback and Risk Taking: Evidence from Retail Forex Trading (2015)
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