Do Superstitious Traders Lose Money?

What is it about?

Do superstitious traders lose money? We answer this question in the context of trading in the Taiwan Futures Exchange, where we exploit the Chinese superstition that the number 8 is lucky and the number 4 is unlucky. We find that individual investors, but not institutional investors, submit disproportionately more limit orders at 8 than at 4. This imbalance, defined as the “superstition index” for each investor, is positively correlated with trading losses. Superstitious investors lose money mainly because of their bad market timing and stale orders. Nevertheless, the reliance on number superstition for limit order submissions does decrease with trading experience.

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Why is it important?

Superstition, which is defined as a belief that is not based on reason, has been a part of the human condition since humans began. Michael Jordan, arguably the greatest basketball player of all time, wore his University of North Carolina shorts under his uniform every time he led the Chicago Bulls to their six NBA championships. The European governing body of Formula 1 auto racing, which is based in Paris and Geneva, bans the number “13” in its entry list for cars. India’s Independence Day falls a day after Pakistan’s because astrologers in India insisted that August 14, 1947, was an inauspicious day to become independent. The Games of the XXIX Summer Olympics opened in Beijing on August 8, 2008, at 8:08 p.m. because the number “8” is a lucky number in Chinese culture. In contrast, Chinese culture considers the number “4” to be unlucky. It is surprising, considering how pervasive superstition is globally, that there is no academic research, as far as we know, on the effect of superstition on individual trading decisions and investment performance. This paper is the first such paper. The paper was featured in the Economist on August 30, 2014.

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