Individual Investors Look at Price Tags*

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

No 2018_17, Working Papers, Department of Economics from University of São Paulo (FEA-USP)

Abstract: We show that a stock price fall, in itself, induces individual investors to buy the stock. 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. Buying after price falls with no further analysis is harmful to investors since price falls tend to be followed by further price falls

Keywords: individual investors; cursed beliefs; prospect theory; contrarian behavior (search for similar items in EconPapers)
JEL-codes: D84 G11 G12 G14 G40 (search for similar items in EconPapers)
Date: 2018-10-30
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