Working Paper: NBER ID: w26911
Authors: Hongqi Liu; Cameron Peng; Wei A. Xiong; Wei Xiong
Abstract: The success of the behavioral economics literature has led to a new challenge—a large number of behavioral biases offering observationally similar predictions for a targeted anomaly in financial markets. To tame the bias zoo, we propose a new approach of combining subjective survey responses with observational data; this approach has the advantage of being robust to question-specific biases introduced through surveys. We illustrate this approach by administering a nationwide survey of Chinese retail investors to elicit their trading motives. In cross-sectional regressions of respondents’ actual turnover on survey-based measures of trading motives, perceived information advantage and gambling preference dominate other motives, even though they are not the most prevalent biases simply based on survey responses.
Keywords: behavioral finance; trading motives; excessive trading; survey data; observational data
JEL Codes: G02; G41; G53
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| gambling preference (L83) | turnover in lottery-like stocks (H27) |
| perceived information advantage (D83) | turnover (J63) |
| extrapolation (Y60) | buying stocks with positive recent returns (G11) |
| neglect of trading costs (F11) | turnover (J63) |