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On the Impacts of Overconfidence under Information Diversity *
Author(s) -
Zhou Deqing,
Zhen Fang
Publication year - 2021
Publication title -
international review of finance
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.489
H-Index - 18
eISSN - 1468-2443
pISSN - 1369-412X
DOI - 10.1111/irfi.12264
Subject(s) - overconfidence effect , market liquidity , dimension (graph theory) , diversity (politics) , population , competition (biology) , economics , microeconomics , business , monetary economics , psychology , social psychology , demography , mathematics , political science , ecology , sociology , pure mathematics , biology , law
This work examines the competition between two groups of overconfident agents when they are informed with different dimensional information. Their strategies could be complementary through a “liquidity improvement effect.” When agents informed in one‐dimension trade more aggressively due to overconfidence, the market liquidity could be improved and agents informed in the other dimension would also trade more aggressively and become better off. In addition, increasing one group's population and information precision could also benefit the other group, while these impacts are mitigated by the overestimation of one's own group population.