Cognitive Biases in Short-term Trading: An Examination of Overconfidence, Herding, and Chasing Performance
Keywords:
Buying and selling securities, cognitive biases, short-term traders, single trading day, stock marketAbstract
This research paper examines the behavioural trends among short-term traders in the stock market. Short-term trading refers to the buying and selling of securities within a brief time frame, typically within a single trading day. The study examines the actions of 500 short-term traders using a combination of quantitative and qualitative data gathering techniques. The results show that
overconfidence is the most common behavioural trend among short-term traders, followed by herding, and the tendency to chase performance. These behaviours are driven by cognitive biases such as availability bias and the disposition effect and negatively impact short-term traders’ performance. The research highlights the need for short-term traders to be aware of their cognitive biases and for regulators to consider measures to mitigate the effects of these behaviours on the stock market.
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