Auric Goldfinger's Short List Message Board

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Non-Tech : Auric Goldfinger's Short List

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From: scion	7/27/2010 1:12:01 PM
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Confirmation Bias, Overconfidence, and Investment Performance: Evidence from Stock Message Boards papers.ssrn.com Download papers.ssrn.com JaeHong Park University of Texas at Austin - Red McCombs School of Business Prabhudev Konana University of Texas at Austin - Department of Information, Risk and Operations Management Bin Gu University of Texas at Austin - Department of Information, Risk and Operations Management Alok Kumar University of Miami - School of Business Administration; University of Texas at Austin Rajagopal Raghunathan University of Texas at Austin - Red McCombs School of Business July 12, 2010 Abstract: Using data from a new field experiment in South Korea, we study how information from virtual communities such as stock message boards influences investors’ trading decisions and investment performance. Motivated by recent studies in psychology, we conjecture that investors would use message boards to seek information that confirms their prior beliefs. This confirmation bias would make them more overconfident and adversely affect their investment performance. An analysis of 502 investor responses from the largest message board operator in South Korea supports our conjecture. We find that investors exhibit confirmation bias when they process information from message boards. We also demonstrate that investors with stronger confirmation bias exhibit greater overconfidence. Those investors have higher expectations about their performance, trade more frequently, but obtain lower realized returns. Collectively, these results suggest that participation in virtual communities increases investors’ propensity to commit investment mistakes and is likely to be detrimental to their investment performance. papers.ssrn.com

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