14:15 - 15:45
Disposed to overconfident
We hypothesize that individuals learn about their investment ability based on realized gains and losses rather than overall portfolio performance.
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Katrin Gödker is joined Bocconi University in 2022 as an Assistant Professor. She is an empiricist working in the field of Behavioral Finance. Much of her work studies investor beliefs, and how they affect investor behavior using experiments (lab, online, and field) as well as archival datasets.
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We hypothesize that individuals learn about their investment ability based on realized gains and losses rather than overall portfolio performance. Thus, how investors sell their stocks, or how they remember those sales, impacts their confidence. The disposition effect and self-serving memory lead to investor overconfidence. We provide empirical evidence for this in (i) survey data and transaction records of Dutch retail investors and (ii) an experiment for causality. In a final step, we outline a model that formalizes the learning mechanism and how it leads to overconfidence as well as lower trading profits and higher volume.
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