Research Seminar in Economics: Asset Price Dynamics and Endogenous Trader Overconfidence
Asset Price Dynamics and Endogenous Trader Overconfidence
Overconfidence is one of the most important biases in financial decision making and commonly associated with excessive trading and asset price volatility. So far, most of the finance literature takes overconfidence as a given, “static” personality trait. Using a new experimental design, we show that trader overconfidence is endogenous and co-moves with asset prices; when asset prices go up, overconfidence rises, and when asset prices go down, overconfidence falls. Larger fluctuations in asset prices are met by larger changes in overconfidence. Hence, our results point towards a feedback loop in which overconfidence adds fuel to the flame of existing bubbles.
Steffen Ahrens is a visiting professor at the Chair of Macroeconomics of Freie Universität Berlin. His research focuses on monetary macroeconomics, behavioral economics and experimental economics.The Seminar will be held digitally. To receive the event details and invitation link, please sign up here.
Zeit & Ort
15.07.2021 | 12:15 - 13:30