The Conflicting Links between Forecast-Confidence and Trading Propensity

Doron Sonsino, Yaron Lahav and Amir Levkowitz

Journal of Behavioral Finance, 2021, vol. 22, issue 4, 443-460

Abstract: While finance studies suggest that forecast-confidence motivates trading, the experimental findings regarding the confidence-trading links are inconclusive and statistically weak. Attempting to bridge the gap, we modify the standard interval forecasting task to measure forecast-confidence more directly. The adapted task is utilized to test the confidence-trading correlations at the attitudinal level and in specific scenarios. The attitudinal test surprisingly reveals that forecast-confidence negatively correlates with the inclination to churn one’s stock portfolio, although confidence in profitability indeed boosts the willingness to trade particular stocks. The attitudinal correlation is endogenous, brought by opposite personality and competence effects on confidence and trading.

Date: 2021
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DOI: 10.1080/15427560.2020.1792911

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