On the Impacts of Overconfidence under Information Diversity

Deqing Zhou and Fang Zhen

International Review of Finance, 2021, vol. 21, issue 1, 345-357

Abstract: This work examines the competition between two groups of overconfident agents when they are informed with different dimensional information. Their strategies could be complementary through a “liquidity improvement effect.” When agents informed in one‐dimension trade more aggressively due to overconfidence, the market liquidity could be improved and agents informed in the other dimension would also trade more aggressively and become better off. In addition, increasing one group's population and information precision could also benefit the other group, while these impacts are mitigated by the overestimation of one's own group population.

Date: 2021
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https://doi.org/10.1111/irfi.12264

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International Review of Finance is currently edited by Bruce D. Grundy, Naifu Chen, Ming Huang, Takao Kobayashi and Sheridan Titman

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