On the Survival of Overconfident Traders in a Competitive Securities Market

David Hirshleifer and Guo Ying Luo ()

MPRA Paper from University Library of Munich, Germany

Abstract: Recent research has proposed several ways in which overconfident traders can persist in competition with rational traders. This paper offers an additional reason: overconfident traders do better than purely rational traders at exploiting mispricing caused by liquidity or noise traders. We examine both the static profitability of overconfident versus rational trading strategies, and the dynamic evolution of a population of overconfident, rational and noise traders. Replication of overconfident and rational types is assumed to be increasing in the recent profitability of their strategies. The main result is that the long-run steady-state equilibrium always involves overconfident traders as a substantial positive fraction of the population.

Keywords: Survivorship; Natural Selection; Overconfident Traders; Noise traders (search for similar items in EconPapers)
JEL-codes: G00 G11 G14 (search for similar items in EconPapers)
Date: 2000
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Related works:
Journal Article: On the survival of overconfident traders in a competitive securities market (2001)
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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:15347

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