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Geneva Risk Insur Rev (2007) 32:136
DOI 10.1007/s10713-007-0003-3
Markus Glaser Martin Weber
Received: 25 October 2006 / Revised: 19 January 2007 / Published online: 17 July 2007 The Geneva Association 2007
Abstract Theoretical models predict that overcondent investors will trade more than rational investors. We directly test this hypothesis by correlating individual overcondence scores with several measures of trading volume of individual investors. Approximately 3,000 online broker investors were asked to answer an internet questionnaire which was designed to measure various facets of overcondence (miscalibration, volatility estimates, better than average effect). The measures of trading volume were calculated by the trades of 215 individual investors who answered the questionnaire. We nd that investors who think that they are above average in terms of investment skills or past performance (but who did not have above average performance in the past) trade more. Measures of miscalibration are, contrary to theory, unrelated to measures of trading volume. This result is striking as theoretical models that incorporate overcondent investors mainly motivate this assumption by the calibration literature and model overcondence as underestimation of the variance of signals. In connection with other recent ndings, we conclude that the usual way of motivating and modeling overcondence which is mainly based on the calibration literature has to be treated with caution. Moreover, our way of empirically evaluating behavioral nance modelsthe correlation of economic and psychological variables and the combination of psychometric measures of judgment biases (such as overcondence scores) and eld dataseems to be a promising way to better understand which psychological phenomena actually drive economic behavior.
This paper was the keynote address at the Barcelona EGRIE meeting.
M. Glaser (&) M. Weber
Lehrstuhl fr Bankbetriebslehre, Universitat Mannheim, L 5, 2, 68131 Mannheim, Germany e-mail: [email protected]
M. Weber
CEPR, London, UKe-mail: [email protected]
Overcondence and trading volume
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2 Geneva Risk Insur Rev (2007) 32:136
Keywords Overcondence Differences of opinion Trading volume Individual investors Investor behavior Correlation of economic and psychological variables Combination of psychometric measures of judgment biases and eld data
JEL Classication D8 G1
1 Introduction
Trading volume appears high in nancial markets. The annualized monthly turnover on the New York Stock Exchange (NYSE) in the last years was about 100%. The number of shares traded on the NYSE in...