Working Papers
"Learning from Personal Experience versus Public Information: Evidence from Retail FX Trades", with A. Milidonis, 2026.
Winner of Best Paper in Finance Award, FMARC 2026.
Abstract: We examine how individual investors weigh personal experience against public information in their trading decisions. Using approximately 61,000 retail foreign exchange traders and over 60 million directional trades, we estimate the relative weight on each signal with a discrete choice model. On average the weight on personal experience is 0.56: traders rely on the two signals about equally, with a small but reliable tilt toward their own experience. This average hides systematic variation that follows a principle established in neuroscience and economics-investors place more weight on whichever signal they perceive as more reliable. The weight on personal experience rises when a trader's own record becomes the more reliable signal: when they trade more intensely and build a denser recent history, and for sterling pairs during the Brexit campaign and the October 2016 flash crash, when political news and an anomalous price move made recent prices less reliable. It falls when public information becomes the more reliable signal: around scheduled central-bank announcements, when new information moves prices, and as traders gain experience and become more confident in interpreting price dynamics. Benchmarked against each signal's power to predict the direction of price changes, traders respond to each signal with the correct sign but overweight public information and underweight personal experience. These findings indicate that the process through which investors learn from public information is dynamic: it depends on how reliable they perceive public information to be relative to their personal experience. (SSRN)
"Sample Size Neglect: Evidence from the Field", with R. Kozhan and C. Mavis, 2025. New Version.
Abstract: We show that sophisticated economic agents, operating in high-stakes real-world setting, systematically neglect a foundational statistical principle: larger samples yield more precise information. Using tennis betting markets as a quasi-natural experiment, we exploit exogenous variation in match length across tournaments, where longer matches require more sets to be won and thus more reliably reveal players’ underlying skill. Professional bookmakers fail to fully adjust for this variation, leading to predictable belief errors and reduced profits. The bias attenuates when sample size is more salient and increases in a laboratory experiment with less experienced individuals. Extending the analysis to financial markets, we find that although analyst earnings forecasts become more accurate with broader coverage, stock prices underreact to this increase in informativeness. Overall, our findings demonstrate that sample size neglect distorts the beliefs of even highly incentivized experts in relatively simple settings, with broad implications for the pricing of information in markets. (SSRN)
“Do Borrowers Exploit Credit Card Default as Insurance? A New Test of Opportunistic Borrowing”, with N. Lyman, M. Pagel and N. Stewart, 2025 (scheduled for presentation at the 2026 AFA).
Abstract: Credit card delinquencies and default may be a form of insurance for poorer households. This brings about potential for moral hazard: do credit card holders borrow opportunistically prior to defaulting on their credit card debt? To answer this question, we look at borrowers who go delinquent on multiple credit cards simultaneously, with some of them eventually being charged off. To control for all unobserved time-variant borrower-specific factors that influence delinquency and default, we use borrower-by-billing-cycle (year-month) fixed effects. We find no evidence that users borrow more or repay less on the delinquent cards that are ultimately charged off versus those that are not. We then show in a structural model that agents must believe that the sensitivity of default penalties to the borrowed amounts are very large. This is not consistent with, first, low recovery rates in the debt collection market, and second, additional evidence showing that the defaulted debt amounts have no impact on credit scores, limits, or APRs. (SSRN)
“Subjectively Salient: Contrast Effects in Investor Responses to Stock Returns”, with J. Guo and N. Stewart, 2024. R&R, Management Science.
Abstract: Stock returns over fixed time intervals, such as daily returns, are typically assumed to be objective metrics perceived uniformly by all investors. We show, however, that investors’ sensitivity to a given daily return nearly doubles when that return is subjectively salient, standing out relative to the investor’s prior personal experiences with daily returns from the stocks in their portfolio. This effect is particularly pronounced when investors are more likely to vividly recall their past return experiences. These results highlight that contrast effects introduce considerable subjectivity in how stock returns are perceived, creating variability in trading decisions. More broadly, our findings reveal a novel behavioral channel through which personal experiences can influence the propagation of price-based information in financial markets. (SSRN)
Publications
"Beyond Firm Characteristics: Forecaster Heterogeneity Explains a Large Portion of Over and Underreaction", with C. Frydman and M. Kilic, Journal of Finance: I&P, 2026, accepted. (SSRN)
"Seeing is Believing: Tourism and Foreign Equity Investments" with C. Cuculiza, A. Kumar and L. Yang , Journal of Banking and Finance, 2025, 178, Article 107498. (Link).
"It Takes Two to Tango: Spousal Risk Preferences and CEO Risk-Taking Behavior", with C. Cuculiza, A., Kumar and L. Yang, Journal of Corporate Finance, 2024, Vol. 86, Article 102584. (Link)
"Exchange-Traded Funds and Real Investment", with F. W. Li, X. Liu, A. Subrahmanyam and C. Sun, Review of Financial Studies, 2023, 36, 1043-1093.
"Do Stock-Level Experienced Returns Affect Security Selection?", with S. Mitali, Journal of Banking and Finance, 2023, forthcoming.
"The Effects of Personality and IQ on Portfolio Outcomes", with Firth, C., Stewart, N., and Leake, D. 2023, Finance Research Letters , 51, 103464
"Terrorist Attacks, Analyst Sentiment, and Earnings Forecasts" with C. Cuculiza, A. Kumar and A. Maligkris, Management Science, 2020, 67, 2579-2608.
"Information Characteristics and Errors in Expectations: Experimental Evidence", with G. H. Harrison, M. Lau and D. Read, Journal of Financial and Quantitative Analysis, 2017, 52, 737-750.
"Corporate Governance and Firm-Specific Stock Price Crashes", with P. Andreou, C. Louca and J. Horton, European Financial Management, 2016, 22, 916-956.
"Investor Sentiment, Beta and the Cost of Equity Capital", with J. A. Doukas and A. Subrahmanyam, Management Science, 2015, 62, 347-367.
"Ambiguity Aversion and Stock Market Participation: An Empirical Analysis", with R. Harris and R. Zhang, Journal of Banking and Finance, 2015, 58, 57-70.
"Subjective Bayesian Beliefs", with G. H. Harrison, M. Lau and D. Read, Journal of Risk and Uncertainty, 2015, 50, 35-54.
"Ambiguity Aversion, Company Size and the Pricing of Earnings Forecasts" with E. Galariotis and D. Read, European Financial Management, 2014, 20, 633-651.
"Cognitive Dissonance, Sentiment and Momentum" with J. Doukas and A. Subrahmanyam, Journal of Financial and Quantitative Analysis, 2013, 48, 245-275.
Inactive working papers
"Style Investing and Commonality in Liquidity", with O. Klein and V. Raman, 2018.
"Managerial Sentiment, and Corporate Policies", with A. Kumar and A. Maligkris, 2017.