The idea that markets are driven only by cold, rational analysis is appealing, but real investors often bring biases into the process. Steffen Andersen, Stephen Dimmock, Kasper Nielsen, and Kim Peijnenburg, authors of the study “Extrapolators and contrarians: Forecast Bias and Individual Investor Stock Trading,” published in the July 2026 issue of the Journal of Financial Economics, examined one of the most important of those biases: whether people tend to extrapolate recent trends or act more like contrarians. By linking experimentally measured forecast bias to actual trading records, the authors showed that how investors form expectations helps explain what they buy, what they sell, and how they respond to market moves.
What the Paper Examined
The authors wanted to know whether forecast bias can predict real trading behavior. Thus, they tested whether investors who expect recent winners to keep outperforming (extrapolators) behave differently from those who are more inclined to bet against recent trends (contrarians).
To do that, they combined lab-based measures of forecasting behavior with administrative stock-trading data. That design is important because it connects a psychological tendency to actual portfolio decisions, rather than relying only on surveys, self-reports, or hypothetical choices.
Their trade-level data covers 2011–2021 and includes all trades made by every Danish investor, including the paper’s subject pool. That gives the authors a broad, detailed view of investor behavior over time and allows them to connect measured bias to real trading outcomes in a large administrative sample.
Key Findings
Comments
Nothing yet. Say the first thing.
Sign in to join the conversation.