Extrapolators and contrarians: Forecast bias and individual investor stock trading
Andersen,Steffen Dimmock,Stephen G. Nielsen,Kasper Meisner Peijnenburg,Kim
Andersen,Steffen
Dimmock,Stephen G.
Nielsen,Kasper Meisner
Peijnenburg,Kim
Abstract
We test whether forecast bias affects individual investors’ stock trading by combining bias measures from laboratory experiments with administrative trade data. Forecast bias is positively associated with past excess returns of purchased stocks: Compared to contrarians, extrapolators purchase stocks with higher past returns. Forecast bias is negatively associated with capital gains of sold stocks. Forecast bias also explains investor heterogeneity in the relation between market returns and net flows. Taken together, forecast bias provides a unifying mechanism through which different salient performance measures — past stock returns, capital gains, and past market returns — shape corresponding purchase, sale, and net flow decisions.
Description
Date
2026-01
Journal Title
Journal ISSN
Volume Title
Publisher
Research Projects
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Journal Issue
Keywords
extrapolation, contrarian bias, forecast bias, expectations, household finance, experimental finance, individual investors, individual investor trading, G5 - Household Finance, G11 - Portfolio Choice ; Investment Decisions, G41 - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making in Financial Markets, D84 - Expectations ; Speculations, D81 - Criteria for Decision-Making under Risk and Uncertainty
Citation
Andersen, S, Dimmock, S G, Nielsen, K M & Peijnenburg, K 2026, 'Extrapolators and contrarians: Forecast bias and individual investor stock trading', Journal of Financial Economics. https://doi.org/10.2139/ssrn.4715158
License
info:eu-repo/semantics/restrictedAccess