Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/336499 
Year of Publication: 
2026
Series/Report no.: 
Danmarks Nationalbank Working Papers No. 217
Publisher: 
Danmarks Nationalbank, Copenhagen
Abstract: 
We test whether forecast bias affects individual investors' stock trading by combining bias measures from laboratory experiments with administrative trade data. Forecast bias is positively associated with past excess returns of purchased stocks: Compared to contrarians, extrapolators purchase stocks with higher past returns. Forecast bias is negatively associated with capital gains of sold stocks. Forecast bias also explains investor heterogeneity in the relation between market returns and net flows. Taken together, forecast bias provides a unifying mechanism through which different salient performance measures - past stock returns, capital gains, and past market returns - shape corresponding purchase, sale, and net flow decisions.
Subjects: 
Extrapolation
Contrarian bias
Forecast bias
Expectations
Household finance
Experimental finance
Individual investors
Individual investor trading
JEL: 
G5
G11
G41
D84
D81
Document Type: 
Working Paper

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