LEARNING TO BE OVERCONFIDENT AND UNDERCONFIDENT

Yuanzhu Lu (), Jinming Hu and Yaxian Gong ()
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Yuanzhu Lu: School of Economics and Management, University of Science and Technology Beijing, Beijing, P. R. China
Jinming Hu: National Equities Exchange and Quotations, Beijing, P. R. China
Yaxian Gong: School of Economics, Central University of Finance and Economics, Beijing, P. R. China

The Singapore Economic Review (SER), 2023, vol. 68, issue 05, 1815-1827

Abstract: This paper analyzes the overconfident and underconfident trading behavior simultaneously in the context extended from Gervais and Odean (2001) [Learning to be overconfident. Review of Financial Studies, 14(1), 1–27]. We find that the overconfidence level will be first decreasing, then increasing and finally decreasing as the number of the successful predictions increases when the underconfident behavior is sufficiently prominent and the expected trading volume in the future will first decrease then increase and finally decrease as the number of successes increases. Furthermore, the insider’s expected profits in the future are a monotonically increasing function of the number of successes when the number of successes is sufficiently small or large but monotonically decreasing function of this number when it is in the intermediate range. This completes the analysis of the investors’ biased behavior.

Keywords: Overconfidence; underconfidence; trading volume; insider’s profits (search for similar items in EconPapers)
JEL-codes: G12 G14 G41 (search for similar items in EconPapers)
Date: 2023
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Citations: View citations in EconPapers (1)

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DOI: 10.1142/S0217590822500801

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