Noise Trading and Illusory Correlations in U.S. Equity Markets
نویسندگان
چکیده
This paper provides evidence that “illusory correlations,” a well-documented source of cognitive bias, leads some agents to be imperfectly rational noise traders. We identify illusory correlations by focusing on the head-and-shoulders chart pattern. Though this is considered one of the most reliable technical trading signals, our evidence indicates that the signal does not profitably predict directional movements as claimed. We connect this illusory correlation to noise trading by showing that the pattern is associated with a significant rise in trading volume and a substantial reduction in bid-ask spreads. JEL Classification: G12, G14
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تاریخ انتشار 2011