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Article: Cognitive Limitation and Investment Performance: Evidence from Limit Order Clustering

TitleCognitive Limitation and Investment Performance: Evidence from Limit Order Clustering
Authors
Issue Date2015
Citation
Review of Financial Studies, 2015, v. 28 n. 3, p. 838-875 How to Cite?
AbstractWe hypothesize that cognitive limitation may be manifested in a disproportionately large volume of limit orders submitted at round-number prices if investors use these numbers as cognitive shortcuts. Using detailed limit order data in the Taiwan Futures Exchange, we find that investors with lower cognitive abilities, defined as higher limit order submission ratios at round numbers, suffer greater losses in their round-numbered and non-round-numbered limit orders, market orders, and round-trip trades. The positive correlation between cognitive ability and investment performance is monotonic and robust across futures and options markets. In addition, past trading experience helps to mitigate the cognitive limitation.
Persistent Identifierhttp://hdl.handle.net/10722/199292
SSRN

 

DC FieldValueLanguage
dc.contributor.authorKuo, WYen_US
dc.contributor.authorLin, TCen_US
dc.contributor.authorZHAO, Jen_US
dc.date.accessioned2014-07-22T01:11:27Z-
dc.date.available2014-07-22T01:11:27Z-
dc.date.issued2015en_US
dc.identifier.citationReview of Financial Studies, 2015, v. 28 n. 3, p. 838-875en_US
dc.identifier.urihttp://hdl.handle.net/10722/199292-
dc.description.abstractWe hypothesize that cognitive limitation may be manifested in a disproportionately large volume of limit orders submitted at round-number prices if investors use these numbers as cognitive shortcuts. Using detailed limit order data in the Taiwan Futures Exchange, we find that investors with lower cognitive abilities, defined as higher limit order submission ratios at round numbers, suffer greater losses in their round-numbered and non-round-numbered limit orders, market orders, and round-trip trades. The positive correlation between cognitive ability and investment performance is monotonic and robust across futures and options markets. In addition, past trading experience helps to mitigate the cognitive limitation.en_US
dc.languageengen_US
dc.relation.ispartofReview of Financial Studiesen_US
dc.rightsCreative Commons: Attribution 3.0 Hong Kong License-
dc.titleCognitive Limitation and Investment Performance: Evidence from Limit Order Clusteringen_US
dc.typeArticleen_US
dc.identifier.emailLin, TC: chunlin@hku.hken_US
dc.identifier.authorityLin, TC=rp01077en_US
dc.description.naturepostprint-
dc.identifier.doi10.1093/rfs/hhu044-
dc.identifier.hkuros231200en_US
dc.identifier.volume28-
dc.identifier.issue3-
dc.identifier.spage838-
dc.identifier.epage875-
dc.identifier.ssrn1988236-

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