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The Price Tag Illusion

Fernando Chague () and Bruno Giovannetti ()
Authors registered in the RePEc Author Service: Rodrigo De-Losso

No 2017_31, Working Papers, Department of Economics from University of São Paulo (FEA-USP)

Abstract: We find that a stock price fall in itself induces more individuals to buy the stock. Used to temporary sales in the goods market, individuals have the illusion that buying a stock at a lower price is also a better deal, ignoring the fact that a price fall usually reflects negative news. We call this illusion the “Price Tag Illusion” (PTI). To identify the PTI, we use two distinct events which generate “fictitious price falls”. The first is the mechanical stock price adjustment on ex-dividend dates. The second is the fluctuation of stock prices around integer numbers. The PTI can cause severe losses to individuals in the stock market

Keywords: individual investors; price tag illusion; contrarian behavior (search for similar items in EconPapers)
JEL-codes: G11 G12 G40 (search for similar items in EconPapers)
Date: 2017-11-16
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