The Impact of Salience on Investor Behavior: Evidence from a Natural Experiment

By Cary Frydman, Baolian Wang. Journal of Finance, 2019

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We test whether the display of information causally affects investor behavior in a high stakes trading environment. Using investor level brokerage data from China and a natural experiment, we estimate the impact of a shock that increased the salience of a stock’s purchase price, but did not change the investor’s information set. We employ a difference-in-differences approach and find that the salience shock causally increased the disposition effect by 17%. We use microdata to document substantial heterogeneity across investors in the treatment effect. A previously documented trading pattern, the “rank effect,” explains heterogeneity in the change in the disposition effect.

Subfields: Accounting, Finance

View Paper: https://www.semanticscholar.org/paper/69c03fb719546507b6e8cb924c962daa30964933