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Private investor extrapolation bias – evidence through qualitative content analysis (QCA)

Albert Rapp (Newcastle Business School, The University of Newcastle, Callaghan, Australia)

Qualitative Research in Financial Markets

ISSN: 1755-4179

Article publication date: 3 May 2016



This paper aims to address the importance of behavioural finance issues among real investors. It analyses whether private investors are susceptible to extrapolation bias and whether this bias affects market prices.


A qualitative coding of message board posts facilitates the construction of sentiment proxies. Using linear techniques, it is tested whether after-hours sentiment is positively predicted by daily share return and whether daily share return exhibits positive autocorrelation.


Private investors are impaired by extrapolation bias, while market prices remain unaffected. Probably, sophisticated professional investors benefit by offsetting the irrational private investor transactions.

Research limitations/implications

As the sample of German blue-chip banks is small and covers a period during the Eurozone crisis, the findings should be generalised with caution. Future research might use a different sample and explore whether non-crisis periods provide comparable results.

Practical implications

Investors should not take for granted the neoclassical assumption that all market participants always act rationally and according to self-interest.

Social implications

Irrespective of whether market prices are efficient, a level playing field between private and professional investors is necessary. Otherwise, confidence in the financial marketplace is not guaranteed and society may incur welfare losses.


The approach of extracting sentiment from a German share message board through qualitative content analysis (QCA) is unique for analysing extrapolation bias. This paper is valuable in drawing attention to the importance of rational investment behaviour among private investors.



The author would like to thank Dr Paul Docherty at the University of Newcastle.


Rapp, A. (2016), "Private investor extrapolation bias – evidence through qualitative content analysis (QCA)", Qualitative Research in Financial Markets, Vol. 8 No. 2, pp. 149-167.



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