Working Papers present research work by both Danmarks Nationalbank’s employees and our partners. Working Papers are primarily targeted at professionals and people with an interest in central banking research as well as economics and finance in a broader sense.
Extrapolators and Contrarians: Forecast Bias and Individual Investor Stock Trading
This study proves forecast bias dictates individual stock trading. Using administrative data, we find bias explains why investors purchase high-return stocks (extrapolation) and vary in selling behavior. Ultimately, forecast bias serves as a unifying mechanism, linking past performance and capital gains to specific purchase, sale, and flow decisions.
The Working Papers of Danmarks Nationalbank describe research and development, often still ongoing, as a contribution to the professional debate. The viewpoints and conclusions stated are the responsibility of the individual contributors, and do not necessarily reflect the views of Danmarks Nationalbank.