Taming the Bias Zoo

54 Pages Posted: 30 Mar 2020 Last revised: 9 Apr 2020

See all articles by Hongqi Liu

Hongqi Liu

Chinese University of Hong Kong, Shenzhen

Cameron Peng

London School of Economics & Political Science (LSE) - Department of Finance

Wei A. Xiong

Shenzhen Stock Exchange

Wei Xiong

Princeton University - Department of Economics; National Bureau of Economic Research (NBER)

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Date Written: March 2020

Abstract

The success of the behavioral economics literature has led to a new challenge—a large number of behavioral biases offering observationally similar predictions for a targeted anomaly in financial markets. To tame the bias zoo, we propose a new approach of combining subjective survey responses with observational data; this approach has the advantage of being robust to question-specific biases introduced through surveys. We illustrate this approach by administering a nationwide survey of Chinese retail investors to elicit their trading motives. In cross-sectional regressions of respondents’ actual turnover on survey-based measures of trading motives, perceived information advantage and gambling preference dominate other motives, even though they are not the most prevalent biases simply based on survey responses.

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Suggested Citation

Liu, Hongqi and Peng, Cameron and Xiong, Wei A. and Xiong, Wei, Taming the Bias Zoo (March 2020). NBER Working Paper No. w26911, Available at SSRN: https://ssrn.com/abstract=3563979

Hongqi Liu (Contact Author)

Chinese University of Hong Kong, Shenzhen ( email )

Cameron Peng

London School of Economics & Political Science (LSE) - Department of Finance ( email )

United Kingdom

Wei A. Xiong

Shenzhen Stock Exchange ( email )

2012 Shennan Blvd., Futian District
Shenzhen
China

Wei Xiong

Princeton University - Department of Economics ( email )

Princeton, NJ 08544-1021
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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