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postgraduate thesis: Cognitive limitation, herding behavior, and investment performance

TitleCognitive limitation, herding behavior, and investment performance
Authors
Advisors
Advisor(s):Lin, TCZhou, X
Issue Date2014
PublisherThe University of Hong Kong (Pokfulam, Hong Kong)
Citation
Zhao, J. [趙靜]. (2014). Cognitive limitation, herding behavior, and investment performance. (Thesis). University of Hong Kong, Pokfulam, Hong Kong SAR. Retrieved from http://dx.doi.org/10.5353/th_b5334870
AbstractThis dissertation consists of two empirical essays about the cognitive limitation, herding behavior, and their association with investment performance. The essays utilize the detailed quotes and trades data in the Taiwan Futures Exchange with investor account identity, to study the cognitive limitation and herding behavior of the investors, and the association between the cognitive limitation, herding behavior, and the investment performance. In the first essay, I hypothesize that cognitive limitation maybe manifested in a disproportionately large volume of limit orders submitted at round-number prices if investors use these numbers as cognitive shortcuts., I 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 mitigate the cognitive limitation. The second essay studies the herding behavior of investors. The second essay studies the herding behavior of investors. I find that individual investors trade in the same direction with other individual investors in the same branch of a broker. Individual investors’ tendency to herd is persistent, and it is negatively associated with their cognitive abilities and trading experience. The higher the herding tendency of an individual investor is, the worse she performs in her investments. Importantly, the negative association between herding and investment performance is driven by the orders that are traded in the same direction with other individual investors. Our results suggest that herding with other individuals imposes a direct cost to individual investors.
DegreeDoctor of Philosophy
SubjectInvestments - Psychological aspects
Dept/ProgramEconomics and Finance
Persistent Identifierhttp://hdl.handle.net/10722/207201

 

DC FieldValueLanguage
dc.contributor.advisorLin, TC-
dc.contributor.advisorZhou, X-
dc.contributor.authorZhao, Jing-
dc.contributor.author趙靜-
dc.date.accessioned2014-12-18T23:17:54Z-
dc.date.available2014-12-18T23:17:54Z-
dc.date.issued2014-
dc.identifier.citationZhao, J. [趙靜]. (2014). Cognitive limitation, herding behavior, and investment performance. (Thesis). University of Hong Kong, Pokfulam, Hong Kong SAR. Retrieved from http://dx.doi.org/10.5353/th_b5334870-
dc.identifier.urihttp://hdl.handle.net/10722/207201-
dc.description.abstractThis dissertation consists of two empirical essays about the cognitive limitation, herding behavior, and their association with investment performance. The essays utilize the detailed quotes and trades data in the Taiwan Futures Exchange with investor account identity, to study the cognitive limitation and herding behavior of the investors, and the association between the cognitive limitation, herding behavior, and the investment performance. In the first essay, I hypothesize that cognitive limitation maybe manifested in a disproportionately large volume of limit orders submitted at round-number prices if investors use these numbers as cognitive shortcuts., I 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 mitigate the cognitive limitation. The second essay studies the herding behavior of investors. The second essay studies the herding behavior of investors. I find that individual investors trade in the same direction with other individual investors in the same branch of a broker. Individual investors’ tendency to herd is persistent, and it is negatively associated with their cognitive abilities and trading experience. The higher the herding tendency of an individual investor is, the worse she performs in her investments. Importantly, the negative association between herding and investment performance is driven by the orders that are traded in the same direction with other individual investors. Our results suggest that herding with other individuals imposes a direct cost to individual investors.-
dc.languageeng-
dc.publisherThe University of Hong Kong (Pokfulam, Hong Kong)-
dc.relation.ispartofHKU Theses Online (HKUTO)-
dc.rightsCreative Commons: Attribution 3.0 Hong Kong License-
dc.rightsThe author retains all proprietary rights, (such as patent rights) and the right to use in future works.-
dc.subject.lcshInvestments - Psychological aspects-
dc.titleCognitive limitation, herding behavior, and investment performance-
dc.typePG_Thesis-
dc.identifier.hkulb5334870-
dc.description.thesisnameDoctor of Philosophy-
dc.description.thesislevelDoctoral-
dc.description.thesisdisciplineEconomics and Finance-
dc.description.naturepublished_or_final_version-
dc.identifier.doi10.5353/th_b5334870-

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