Peng, Cheng (2017) Investor behavior under the law of small numbers. . SSRN.
Full text not available from this repository.Abstract
I study how investors trade under the law of small numbers, the belief that even a small sample represents the characteristics of the underlying population. These investors expect short-term trends to reverse but long-term trends to continue. Using a simple model, I show that the law of small numbers can explain several well-documented trading phenomena: chasing long-term trends, bucking short-term trends, the disposition effect, and the V-shaped selling propensity. Moreover, I derive and successfully test the model's new predictions, and in doing so, I (1) provide evidence for heterogeneous horizons, (2) highlight how investors' extrapolation horizon and holding period can explain variation in their disposition effect, and (3) show that the V-shaped selling propensity is an aggregate phenomenon driven by separate groups of investors.
| Item Type: | Monograph (Working Paper) |
|---|---|
| Additional Information: | © 2017 The Author |
| Divisions: | Finance |
| Subjects: | H Social Sciences > HG Finance |
| JEL classification: | G - Financial Economics > G1 - General Financial Markets > G11 - Portfolio Choice; Investment Decisions |
| Date Deposited: | 11 Oct 2019 11:45 |
| Last Modified: | 15 Sep 2023 23:47 |
| URI: | http://eprints.lse.ac.uk/id/eprint/102058 |
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