Confidence and trading aggressiveness of naïve investors: effects of information quantity and consistency

Confidence and trading aggressiveness of naïve investors: effects of information quantity and... Advances in technology, as well as regulatory and legislative actions, have led to an increase in the quantity of information available to the public. This paper experimentally examines the effects of information quantity and consistency (or directional agreement) on the judgments and trading behavior of naïve investors, holding constant the quality (or predictive value) of information. In my experiment, investors receive accounting signals and make predictions and trading decisions for 24 separate firms. I find that increasing the quantity and consistency of information leads naïve investors to show greater judgment confidence and trading aggressiveness. Increased quantity reduces investors’ expected wealth in laboratory markets, while the effect of consistency on expected wealth depends on the relationship between the low- and high-quality signals investors receive. Results highlight possible unintended consequences of increased disclosure and suggest directions for future experimental and archival research. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Review of Accounting Studies Springer Journals

Confidence and trading aggressiveness of naïve investors: effects of information quantity and consistency

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Publisher
Springer US
Copyright
Copyright © 2009 by Springer Science+Business Media, LLC
Subject
Business and Management; Accounting/Auditing; Corporate Finance; Public Finance
ISSN
1380-6653
eISSN
1573-7136
D.O.I.
10.1007/s11142-009-9106-7
Publisher site
See Article on Publisher Site

Abstract

Advances in technology, as well as regulatory and legislative actions, have led to an increase in the quantity of information available to the public. This paper experimentally examines the effects of information quantity and consistency (or directional agreement) on the judgments and trading behavior of naïve investors, holding constant the quality (or predictive value) of information. In my experiment, investors receive accounting signals and make predictions and trading decisions for 24 separate firms. I find that increasing the quantity and consistency of information leads naïve investors to show greater judgment confidence and trading aggressiveness. Increased quantity reduces investors’ expected wealth in laboratory markets, while the effect of consistency on expected wealth depends on the relationship between the low- and high-quality signals investors receive. Results highlight possible unintended consequences of increased disclosure and suggest directions for future experimental and archival research.

Journal

Review of Accounting StudiesSpringer Journals

Published: Jun 13, 2009

References

  • Communication of confidence as a determinant of group judgment accuracy
    Bloomfield, R; Libby, R; Nelson, M
  • Confidence and the welfare of less-informed investors
    Bloomfield, R; Libby, R; Nelson, M
  • Do investors overrely on old elements of the earnings time series?
    Bloomfield, R; Libby, R; Nelson, M
  • Overconfidence and excess entry: An experimental approach
    Camerer, CF; Lovallo, D
  • The illusion of knowledge: When more information reduces accuracy and increases confidence
    Hall, CC; Ariss, L; Todorov, A

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