The effects of stated preferences for firm characteristics, optimism and overconfidence on trading activities
Abstract
Purpose
The purpose of this paper is to test the competing explanations of stated preferences for firm characteristics, optimism and overconfidence for trading activities in a single framework.
Design/methodology/approach
A survey methodology is followed to collect the data among retail investors in Malaysia using simple random sampling.
Findings
The findings show simultaneous identification of stated preferences for firm characteristics, optimism and overconfidence as determinants of trading activities. Preferences for firm’s profitability characteristics, management and product-related attributes and risky characteristics are likely to decrease investors’ trading activities. On the other hand, preferences for firm’s liquidity and trading volume characteristics with relative financial-domain optimism, personal investment optimism and better-than-average aspect of overconfidence are likely to increase investors’ trading activities.
Practical implications
This finding implies that investors should be careful not only in assessing firm’s characteristics but also need to understand the effects of optimism and overconfidence in trading decisions.
Originality/value
The study considers various aspects of optimism and overconfidence, and the stated preferences for firm characteristics, unlike one aspect of these behavioral biases and indirect observation of preferences for firm characteristics. Furthermore, the study considers trading frequency, annual portfolio turnover and trading intention, whereas earlier studies considered only one or two of these trading decisions.
Keywords
Acknowledgements
Financial support provided by the Ministry of Higher Education (MOHE), Malaysia under Fundamental Research Grant Scheme (Grant No. EP20101103001) is gratefully acknowledged.
Citation
Islam Khan, M.T., Tan, S.-H. and Chong, L.-L. (2016), "The effects of stated preferences for firm characteristics, optimism and overconfidence on trading activities", International Journal of Bank Marketing, Vol. 34 No. 7, pp. 1114-1130. https://doi.org/10.1108/IJBM-10-2015-0154
Publisher
:Emerald Group Publishing Limited
Copyright © 2016, Emerald Group Publishing Limited