Do Behavioral Biases Affect Order Aggressiveness?

Jiangze Bian; Kalok Chan; Donghui Shi; Hao Zhou

doi:10.1093/rof/rfx037

Do Behavioral Biases Affect Order Aggressiveness?

Jiangze Bian
, Kalok Chan
, Donghui Shi
, Hao Zhou

Research output: Journal Publications and Reviews › RGC 21 - Publication in refereed journal › peer-review

11 Citations (Scopus)

Abstract

We extend previous studies on the effect of behavioral biases on investor hold/sell decisions, and examine whether behavioral biases affect the order submission strategies. We use a unique database provided by the Shanghai Stock Exchange, which contains order submissions and executions as well as trading records of all investors. We find investors are less aggressive in submitting sell orders for stocks that experienced losses, and more aggressive in submitting sell orders for stocks that experienced gains. The sell order aggressiveness is negatively related to the size of losses, but has a quadratic relationship with the size of gains. Results are consistent with the combination of the disposition and the house money effects. © The Authors 2017. Published by Oxford University Press on behalf of the European Finance Association. All rights reserved.

Original language	English
Pages (from-to)	1121-1151
Journal	Review of Finance
Volume	22
Issue number	3
DOIs	https://doi.org/10.1093/rof/rfx037
Publication status	Published - 1 May 2018
Externally published	Yes

Bibliographical note

Publication details (e.g. title, author(s), publication statuses and dates) are captured on an “AS IS” and “AS AVAILABLE” basis at the time of record harvesting from the data source. Suggestions for further amendments or supplementary information can be sent to [email protected].

Funding

For their helpful comments, we thank Jie Gan, Jennifer Huang, Eric Lam (discussant), Yu-Jane Liu, Mark Seasholes, Liyan Yang (discussant), Jialin Yu, Jianfeng Yu, Shaojun Zhang (discussant), Ning Zhu, participants at seminars at the Shanghai Stock Exchange, Peking University, Tsinghua University, HKUST, CKGSB, and UIBE, and participants at the Second Symposium on China’s Financial Markets at Peking University, the 2014 China International Finance Conference (Chengdu), and 2015 Asian Finance Association Annual conference (Changhsha). We thank the Shanghai Stock Exchange for sharing the data used in this study. Miao Yu provides excellent research assistance. Bian is grateful for the support from the MOE (Ministry of Education in China) Liberal Arts and Social Sciences Foundation (Project No. 12YJC790001), the National Social Science Foundation of China [Project no. 12CJY117] and the Fundamental Research Funds for the Central Universities in UIBE [Project no. 76160204]. Chan is grateful for an Earmarked Grant from the Research Grants Council of Hong Kong [Project no: 640112]. The views presented here are solely those of the authors and do not represent those of the Shanghai Stock Exchange or its staff. The usual disclaimer applies.

Research Keywords

Disposition effect
Order aggressiveness
Order submission

RGC Funding Information

RGC-funded

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10.1093/rof/rfx037

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Cite this

@article{70fcb50da4e74c6498e22613bd07e7ee,

title = "Do Behavioral Biases Affect Order Aggressiveness?",

abstract = "We extend previous studies on the effect of behavioral biases on investor hold/sell decisions, and examine whether behavioral biases affect the order submission strategies. We use a unique database provided by the Shanghai Stock Exchange, which contains order submissions and executions as well as trading records of all investors. We find investors are less aggressive in submitting sell orders for stocks that experienced losses, and more aggressive in submitting sell orders for stocks that experienced gains. The sell order aggressiveness is negatively related to the size of losses, but has a quadratic relationship with the size of gains. Results are consistent with the combination of the disposition and the house money effects. {\textcopyright} The Authors 2017. Published by Oxford University Press on behalf of the European Finance Association. All rights reserved.",

keywords = "Disposition effect, Order aggressiveness, Order submission",

author = "Jiangze Bian and Kalok Chan and Donghui Shi and Hao Zhou",

note = "Publication details (e.g. title, author(s), publication statuses and dates) are captured on an “AS IS” and “AS AVAILABLE” basis at the time of record harvesting from the data source. Suggestions for further amendments or supplementary information can be sent to [email protected]. ",

year = "2018",

month = may,

day = "1",

doi = "10.1093/rof/rfx037",

language = "English",

volume = "22",

pages = "1121--1151",

journal = "Review of Finance",

issn = "1572-3097",