The Impact of Salience on Investor Behavior: Evidence from a Natural Experiment

Cary Frydman and Baolian Wang

Journal of Finance, 2020, vol. 75, issue 1, 229-276

Abstract: We test whether the display of information causally affects investor behavior in a high‐stakes trading environment. Using investor‐level brokerage data from China and a natural experiment, we estimate the impact of a shock that increased the salience of a stock's purchase price but did not change the investor's information set. We employ a difference‐in‐differences approach and find that the salience shock causally increased the disposition effect by 17%. We use microdata to document substantial heterogeneity across investors in the treatment effect. A previously documented trading pattern, the “rank effect,” explains heterogeneity in the change in the disposition effect.

Date: 2020
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Persistent link: https://EconPapers.repec.org/RePEc:bla:jfinan:v:75:y:2020:i:1:p:229-276

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