The Conflicting Links between Forecast-Confidence and Trading Propensity

Doron Sonsino; Yaron Lahav; Amir Levkowitz

doi:10.1080/15427560.2020.1792911

The Conflicting Links between Forecast-Confidence and Trading Propensity

Doron Sonsino, Yaron Lahav, Amir Levkowitz

Research output: Contribution to journal › Article › peer-review

1 Scopus citations

Abstract

While finance studies suggest that forecast-confidence motivates trading, the experimental findings regarding the confidence-trading links are inconclusive and statistically weak. Attempting to bridge the gap, we modify the standard interval forecasting task to measure forecast-confidence more directly. The adapted task is utilized to test the confidence-trading correlations at the attitudinal level and in specific scenarios. The attitudinal test surprisingly reveals that forecast-confidence negatively correlates with the inclination to churn one’s stock portfolio, although confidence in profitability indeed boosts the willingness to trade particular stocks. The attitudinal correlation is endogenous, brought by opposite personality and competence effects on confidence and trading.

Original language	English
Pages (from-to)	1-18
Number of pages	18
Journal	Journal of Behavioral Finance
DOIs	https://doi.org/10.1080/15427560.2020.1792911
State	Published - 1 Jan 2020

Keywords

Forecast-confidence
Overprecision
Personality
Trading propensity

ASJC Scopus subject areas

Experimental and Cognitive Psychology
Finance

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10.1080/15427560.2020.1792911

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title = "The Conflicting Links between Forecast-Confidence and Trading Propensity",

abstract = "While finance studies suggest that forecast-confidence motivates trading, the experimental findings regarding the confidence-trading links are inconclusive and statistically weak. Attempting to bridge the gap, we modify the standard interval forecasting task to measure forecast-confidence more directly. The adapted task is utilized to test the confidence-trading correlations at the attitudinal level and in specific scenarios. The attitudinal test surprisingly reveals that forecast-confidence negatively correlates with the inclination to churn one{\textquoteright}s stock portfolio, although confidence in profitability indeed boosts the willingness to trade particular stocks. The attitudinal correlation is endogenous, brought by opposite personality and competence effects on confidence and trading.",

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The Conflicting Links between Forecast-Confidence and Trading Propensity

Abstract

Keywords

ASJC Scopus subject areas

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