Private information advantage or overconfidence? Performance of intraday arbitrage speculators in the Chinese stock market

Xiaotao Zhang, Junpeng Liang and Feng He

Pacific-Basin Finance Journal, 2019, vol. 58, issue C

Abstract: Using a unique investor account database from a large brokerage company in China, we study the relationship between overconfidence and individual stock investment performance. We show that overconfident investors hurt their performance by trading more in general. We then focus on the effects of the different overconfidence levels of intraday and non-intraday arbitrage investors to study how overconfidence affects individual investor behaviour. Intraday arbitrage investors tend to be more overconfident and have lower returns. We discover the different U-shaped patterns between the two groups; while overconfident investors trade more in non-intraday arbitrage groups that hurt their returns, the excess trading times of intraday arbitrage investors also show that they are better at gaining profits with higher trading frequency. We further conclude that the realised returns of intraday arbitrage induce higher levels of investor overconfidence, which hurts the overall returns of investors. We provide the first direct empirical evidence of the effect of overconfidence on individual investment returns in the Chinese stock market.

Keywords: Overconfidence; Intraday arbitrage; Realised return; Investment performance (search for similar items in EconPapers)
Date: 2019
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (11)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:pacfin:v:58:y:2019:i:c:s0927538x19300411

DOI: 10.1016/j.pacfin.2019.101215

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