OVERCONFIDENCE AND TRADING VOLUME: EVIDENCE FROM AN EMERGENT MARKET

Abstract

It has been a challenge for financial economists to explain some stylized factsobserved in securities markets, among them, high levels of trading volume. The mostprominent explanation of excess volume is overconfidence. High market returns makeinvestors overconfident and as a consequence, these investors trade more subsequently andmake some transactions more aggressively. The aim of our paper is to study the impact of thephenomenon of overconfidence on the trading volume and its role in the formation of theexcess volume on the Tunisian stock market. Based on the work of Statman, Thorley andVorkink (2006) and by using VAR models and impulse response functions, we find a littleevidence of the overconfidence hypothesis when we use volume (shares traded) as proxy oftrading volume.overconfidence, disposition effect, trading volume, emergent market