Individuals neglect the informational role of prices: evidence from the stock market

Fernando Chague, Rodrigo de Losso da Silveira Bueno and Bruno Giovannetti
Authors registered in the RePEc Author Service: Rodrigo De-Losso

No 467, Textos para discussão from FGV EESP - Escola de Economia de São Paulo, Fundação Getulio Vargas (Brazil)

Abstract: We find that a stock price fall in itself induces individual investors to buy the stock. That is, individuals neglect the negative information that may be attached to a stock price fall. Our identification strategy uses two distinct events which generate fictitious price falls. The first is the mechanical stock price adjustment on ex-dividend dates. The second explores the so-called left-digit effect, the well-documented empirical fact that individuals disproportionally focus on left digits when evaluating numbers. Our results contribute to the understanding of why people trade.

Date: 2018-02
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Citations: View citations in EconPapers (3)

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