Skip to main navigationSkip to main content
The University of Southampton
Centre for Risk Research

Why do financial traders tend to sell losing positions when the price reaches a round number? Event

Dr Peter Fraser-Mackenzie
Time:
13:00 - 14:00
Date:
18 November 2015
Venue:
Room 1003 Building 58 Highfield Campus University of Southampton

For more information regarding this event, please email Dr Ian G.J. Dawson at I.G.Dawson@Soton.ac.uk .

Event details

In this Centre for Risk Research seminar, Dr Fraser-Mackenzie will discuss why we often see prices that end just one penny or pound below a round number, such as £2.99 or £599, and tend to perceive these prices as being significantly lower than the rounded version of the price (i.e. £3.00 and £600); a so-called "left-digit effect". He will explain that previous studies have indicated that buy-sell imbalances can occur as a result of this bias in financial markets. Furthermore, the cost to susceptible investors on the New York Stock Exchange alone is estimated to be around $813 million a year. Dr Fraser-Mackenzie will explain this effect by combining the theory of analogue numerical heuristics with prospect theory in order to develop an new "analogue value function". However, this value function also predicts a previously unreported phenomenon; that the left-digit effect will be more pronounced in situations involving losses (cf. gains). He has confirmed this prediction in both a laboratory experiment regarding hypothetical investments and analysis of buy–sell imbalances in over 15 million trades by investors in a financial-derivative market. Dr Fraser-Mackenzie will conclude that the analogue value function is a promising explanation for the left-digit effect. Furthermore, he will suggest that interventions aimed at reducing costly buy–sell imbalances in financial markets should focus on the decisions made by investors when they are facing loss.

Speaker information

Dr Peter Fraser-Mackenzie,Peter gained his PhD in cognitive psychology at the Cognitive Neuroscience Laboratory at the University of Southampton where he worked on a range of research projects related to human perception, judgement and decision-making. Joining Cognitive Consultants International Ltd. in 2009, he worked on a range of consultancy projects for the National Institute of Standards and Technology (NIST), Federal Bureau of Investigation (FBI) and Department of Defense (DoD/ CTTSO/ TSWG), Scottish Police Authority (SPA) and Surrey and Sussex Police. Peter then joined the Centre for Risk Research at the University of Southampton where he began research into the characteristics of individuals in various speculative markets, including online poker markets and retail sector derivative and financial spread-bet markets. Peter is currently working on a Knowledge Transfer Partnership (KTP) with the Star Financial Systems in London exploring how client profiling can be used to help financial firms manage their risk.

Privacy Settings