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Penny wise, dollar foolish / Utpal Bhattacharya in Management science, Vol. 58 N° 2 (Février 2012) 

Public ISBD [article]  in Management science > Vol. 58 N° 2 (Février 2012) . - pp. 413-431 Titre : Penny wise, dollar foolish : Buy–sell imbalances on and around round numbers Type de document : texte imprimé Auteurs : Utpal Bhattacharya, Auteur ; Craig W. Holden, Auteur ; Stacey Jacobsen, Auteur Année de publication : 2012 Article en page(s) : pp. 413-431 Note générale : Management Langues : Anglais (eng) Mots-clés : Cognitive  reference  points  Round  numbers  Left-digit  effect  Nine-ending  prices  Trading  strategies Résumé : This paper provides evidence that stock traders focus on round numbers as cognitive reference points for value. Using a random sample of more than 100 million stock transactions, we find excess buying (selling) by liquidity demanders at all price points one penny below (above) round numbers. Further, the size of the buy–sell imbalance is monotonic in the roundness of the adjacent round number (i.e., largest adjacent to integers, second-largest adjacent to half-dollars, etc.). Conditioning on the price path, we find much stronger excess buying (selling) by liquidity demanders when the ask falls (bid rises) to reach the integer than when it crosses the integer. We discuss and test three explanations for these results. Finally, 24-hour returns also vary by price point, and buy–sell imbalances are a major determinant of that variation across price points. Buying (selling) by liquidity demanders below (above) round numbers yield losses approaching $1 billion per year. DEWEY : 658 ISSN : 0025-1909 En ligne : http://mansci.journal.informs.org/content/58/2/413.abstract [article] Penny wise, dollar foolish : Buy–sell imbalances on and around round numbers [texte imprimé] / Utpal Bhattacharya, Auteur ; Craig W. Holden, Auteur ; Stacey Jacobsen, Auteur . - 2012 . - pp. 413-431. Management Langues : Anglais (eng) in Management science > Vol. 58 N° 2 (Février 2012) . - pp. 413-431 Mots-clés : Cognitive  reference  points  Round  numbers  Left-digit  effect  Nine-ending  prices  Trading  strategies Résumé : This paper provides evidence that stock traders focus on round numbers as cognitive reference points for value. Using a random sample of more than 100 million stock transactions, we find excess buying (selling) by liquidity demanders at all price points one penny below (above) round numbers. Further, the size of the buy–sell imbalance is monotonic in the roundness of the adjacent round number (i.e., largest adjacent to integers, second-largest adjacent to half-dollars, etc.). Conditioning on the price path, we find much stronger excess buying (selling) by liquidity demanders when the ask falls (bid rises) to reach the integer than when it crosses the integer. We discuss and test three explanations for these results. Finally, 24-hour returns also vary by price point, and buy–sell imbalances are a major determinant of that variation across price points. Buying (selling) by liquidity demanders below (above) round numbers yield losses approaching $1 billion per year. DEWEY : 658 ISSN : 0025-1909 En ligne : http://mansci.journal.informs.org/content/58/2/413.abstract