BItNotes 16

Portfolio and psychology of high frequency online traders
Second report on the Italian market

Barbara Alemanni, Alessandra Franzosi

July 2006

Abstract

In Italy, online trading is an important and well established phenomenon. This paper investigates the portfolio and psychological traits of Italian high frequency online traders. Our analysis is based upon a telephonic survey conducted with more than 200 online traders. The sample is composed of both active traders, those with at least two trades per month, and heavy traders, those with daily negotiation activity. In this paper, first we investigate the trading and portfolio characteristics of our sampled investors. A measure of portfolio composition and turnover is given, together with trading habits such as the market and frequency of negotiation. The second part of the paper deals with two psychological characteristics of Italian online traders: overconfidence, i.e. the extent to which they overestimate the precision of their information, and self-monitoring, which is a form of social intelligence. Differently from other papers, where overconfidence is assumed by the trading behaviour of investors, we directly investigate the degree of overconfidence of online traders. In our analysis, we give evidence on different manifestations of overconfidence such as: miscalibration, better than average effect, illusion of control and excessive optimism. We also questioned our sampled investors on their degree of social intelligence. Both overconfidence and self-monitoring are then related to portfolio characteristics and trading habits. The paper concludes with an econometric analysis to test how trading habits can be related to socio-demographic and to psychological traits. We observe how overconfidence and good self-monitoring positively affect trading frequency.

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For further information please send an e-mail to:
alessandra.franzosi@borsaitaliana.it