The Role Of Anchoring Bias In The Equity Market
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The Role Of Anchoring Bias In The Equity Market
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Author : Ling Cen
language : en
Publisher:
Release Date : 2011
The Role Of Anchoring Bias In The Equity Market written by Ling Cen and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2011 with categories.
Ldquo;Anchoringrdquo; describes the fact that in forming numerical estimates of uncertain quantities, adjustments in assessments away from an arbitrary initial value are often insufficient. We show that this cognitive bias has significant economic consequences for the efficiency of financial markets. We find that analysts make optimistic (pessimistic) forecasts when a firm's forecast earnings per share (FEPS) is lower (higher) than the industry median. Further, firms with FEPS greater (lower) than the industry median experience abnormally high (low) future stock returns, particularly around subsequent earnings announcement dates. Finally, split firms experience greater positive forecast revisions, larger forecast errors, and larger negative earnings surprises after a stock split compared to which did not split their stocks, especially for firms with a low FEPS relative to the industry median.
The Effects Of Anchoring Bias On Behavior In Financial Markets
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Author : Pascal Hlavka
language : en
Publisher:
Release Date : 2022-01-27
The Effects Of Anchoring Bias On Behavior In Financial Markets written by Pascal Hlavka and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2022-01-27 with categories.
Seminar paper from the year 2021 in the subject Economics - Finance, grade: 1.7, LMU Munich, language: English, abstract: The phenomenon of Anchoring bias refers to the influence of arbitrary numbers in decision-making under uncertainty. Humans are affected by anchors on a daily basis, especially when confronted with quantitative tasks. However, basic anchoring effects appear even when individuals are not expected to compare the value to a certain estimation task. Many researchers tried to figure out the reasons for the anchoring bias. Kahnemann et alii conducted three studies and concluded anchoring bias as the disability of adjustment processes. In an experimental setting the anchoring effects are examined by first showing the participant an arbitrary number, then comparing it to a certain targeted value and finally giving an own estimation. The anchoring bias appears in the last step as the estimation is inevitably biased toward the initial anchor. An alternative explanation is found in the studies conducted by Mussweiler et al. They suggest that the anchoring effect is rather a combination of insufficient adjustment and selective accessibility. This paper aims to combine both explanations and test four hypotheses in an experimental setting related to financial markets. The first assumption to be tested is whether a comparative task yields to higher anchoring bias when an anchor is provided or self-generated. The second hypothesis to be proved is whether the anchoring bias can mitigate by giving explanations on the comparative task answers. Thirdly, the paper assumes a positive correlation between motivation and cognitive capacity influence the estimates significantly. Finally, this paper extents the research by asking whether risk-aversion is correlated to the anchoring bias.
Anchoring In Mergers Acquisitions
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Author : Jan Gropp
language : en
Publisher: GRIN Verlag
Release Date : 2012-11-20
Anchoring In Mergers Acquisitions written by Jan Gropp and has been published by GRIN Verlag this book supported file pdf, txt, epub, kindle and other format this book has been release on 2012-11-20 with Business & Economics categories.
Master's Thesis from the year 2012 in the subject Business economics - Investment and Finance, grade: 1.0, Copenhagen Business School, course: Corporate Finance, language: English, abstract: Several studies show that people are often influenced by reference points which are derived from the context at hand in estimations or decisions under uncertainty. This analysis deals with the importance of reference points in the UK and to a lesser extent the European takeover market. Applying "prospect theory" to equity investment we would predict that shareholders value gains and losses relative to a reference point in a very human fashion. In a psychological bias called the "anchoring effect", investors adopt irrelevant salient anchor values as reference points and are biased towards these. We follow these predictions and, in this thesis, test historic peak prices as anchor values in corporate takeovers for bidder and target management as well as shareholders. Firstly, we analyze whether bid prices are affected by the 13-, 26-, 39-, 52- and 65-week high prices. Secondly, we are interested in whether for companies whose valuation has fallen far from the historic peaks, these anchor values are of lesser relevance, consistent with the S-shaped form of the prospect theory value function. Finally, bidding above the historic peak prices is tested and analyzed, in whether this entails a higher probability of bidding success. For the purpose of the thesis, a dataset of in total 1602 takeover bids for listed companies in the United Kingdom (1559), Germany (36) and Poland (7) from Thomson ONE Banker was constructed. The sample includes bids announced and completed in the time period of 1985 - 2011. Data on stock price history for the target companies was extracted from Thomson Reuters Datastream. OLS regression, Gaussian Kernel Regression, Piecewise Linear Regression and Probit regressions are the tools employed to thoroughly analyze the data. We find that all historic reference values examined exhibit statistically significant impact on the bidder offer prices with diminishing impact of the reference prices observed for extreme values. Importantly, no statistically significant evidence that bidding above historic peak prices secures a higher acceptance rate from target shareholders was discovered. This finding does not support the reference point thinking for target shareholders. The same is true for offer price increases. Offer prices below peak prices do not carry a higher probability of being amended than offer prices ranging above reference prices.
Behavioral Finance And Wealth Management
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Author : Michael M. Pompian
language : en
Publisher: John Wiley & Sons
Release Date : 2011-01-31
Behavioral Finance And Wealth Management written by Michael M. Pompian and has been published by John Wiley & Sons this book supported file pdf, txt, epub, kindle and other format this book has been release on 2011-01-31 with Business & Economics categories.
"Pompian is handing you the magic book, the one that reveals your behavioral flaws and shows you how to avoid them. The tricks to success are here. Read and do not stop until you are one of very few magicians." —Arnold S. Wood, President and Chief Executive Officer, Martingale Asset Management Fear and greed drive markets, as well as good and bad investment decision-making. In Behavioral Finance and Wealth Management, financial expert Michael Pompian shows you, whether you're an investor or a financial advisor, how to make better investment decisions by employing behavioral finance research. Pompian takes a practical approach to the science of behavioral finance and puts it to use in the real world. He reveals 20 of the most prominent individual investor biases and helps you properly modify your asset allocation decisions based on the latest research on behavioral anomalies of individual investors.
Financial Risk Tolerance A Psychometric Review
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Author : John E. Grable
language : en
Publisher: CFA Institute Research Foundation
Release Date : 2017-06-30
Financial Risk Tolerance A Psychometric Review written by John E. Grable and has been published by CFA Institute Research Foundation this book supported file pdf, txt, epub, kindle and other format this book has been release on 2017-06-30 with Business & Economics categories.
This content provides financial analysts, investment professionals, and financial planners with a review of how financial risk-tolerance tests can and should be evaluated. It begins by clarifying terms related to risk taking and is followed by a broad overview of two important measurement terms: validity and reliability. It concludes with examples for practice.
Judgment Under Uncertainty
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Author : Daniel Kahneman
language : en
Publisher: Cambridge University Press
Release Date : 1982-04-30
Judgment Under Uncertainty written by Daniel Kahneman and has been published by Cambridge University Press this book supported file pdf, txt, epub, kindle and other format this book has been release on 1982-04-30 with Psychology categories.
Thirty-five chapters describe various judgmental heuristics and the biases they produce, not only in laboratory experiments, but in important social, medical, and political situations as well. Most review multiple studies or entire subareas rather than describing single experimental studies.
Choice Hacking
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Author : Jennifer L. Clinehens
language : en
Publisher: Jennifer L. Clinehens
Release Date : 2020-06-16
Choice Hacking written by Jennifer L. Clinehens and has been published by Jennifer L. Clinehens this book supported file pdf, txt, epub, kindle and other format this book has been release on 2020-06-16 with Business & Economics categories.
What if you could use Nobel prize-winning science to predict the choices your customers will make? Customer and user behaviors can seem irrational. Shaped by mental shortcuts and psychological biases, their actions often appear random on the surface. In Choice Hacking, we'll learn to predict these irrational behaviors and apply the science of decision-making to create unforgettable customer experiences. Discover a framework for designing experiences that doesn't just show you what principles to apply, but introduces a new way of thinking about customer behavior. You'll finish Choice Hacking feeling confident and ready to transform your experience with science. In Choice Hacking, you'll discover: - How to make sure your customer experience is designed for what people do (not what they say they'll do) - How to increase the odds that customers will make the "right choice" in any environment - How to design user experiences that drive action and engagement - How to create retail experiences that persuade and drive brand love - How brands like Uber, Netflix, Disney, and Starbucks apply these principles in their customer and user experiences Additional resources included with the book: - Access to free video Companion Course - Access to exclusive free resources, tools, examples, and use cases online Who will benefit from reading Choice Hacking? This book was written for anyone who wants to better understand customer and user decision-making. Whether you're a consultant, strategist, digital marketer, small business owner, writer, user experience designer, student, manager, or organizational leader, you will find immediate value in Choice Hacking. About the Author Jennifer Clinehens is currently Head of Experience at a major global experience agency. She holds a Master's degree in Brand Management as well as an MBA from Emory University's Goizueta School. Ms. Clinehens has client-side and consulting experience working for brands like AT&T, McDonald's, and Adidas, and she's helped shape customer experiences across the globe. A recognized authority in marketing and customer experience, she is also the author of CX That Sings: An Introduction To Customer Journey Mapping. To learn more about this book or contact the author, please visit ChoiceHacking.com
Investment Traps Exposed
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Author : H. Kent Baker
language : en
Publisher: Emerald Group Publishing
Release Date : 2017-03-20
Investment Traps Exposed written by H. Kent Baker and has been published by Emerald Group Publishing this book supported file pdf, txt, epub, kindle and other format this book has been release on 2017-03-20 with Business & Economics categories.
Investment Traps Exposed helps investors and investment practitioners increase their awareness about the external and internal traps that they or their clients can encounter.
Investor Behavior
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Author : H. Kent Baker
language : en
Publisher: John Wiley & Sons
Release Date : 2014-02-10
Investor Behavior written by H. Kent Baker and has been published by John Wiley & Sons this book supported file pdf, txt, epub, kindle and other format this book has been release on 2014-02-10 with Business & Economics categories.
WINNER, Business: Personal Finance/Investing, 2015 USA Best Book Awards FINALIST, Business: Reference, 2015 USA Best Book Awards Investor Behavior provides readers with a comprehensive understanding and the latest research in the area of behavioral finance and investor decision making. Blending contributions from noted academics and experienced practitioners, this 30-chapter book will provide investment professionals with insights on how to understand and manage client behavior; a framework for interpreting financial market activity; and an in-depth understanding of this important new field of investment research. The book should also be of interest to academics, investors, and students. The book will cover the major principles of investor psychology, including heuristics, bounded rationality, regret theory, mental accounting, framing, prospect theory, and loss aversion. Specific sections of the book will delve into the role of personality traits, financial therapy, retirement planning, financial coaching, and emotions in investment decisions. Other topics covered include risk perception and tolerance, asset allocation decisions under inertia and inattention bias; evidenced based financial planning, motivation and satisfaction, behavioral investment management, and neurofinance. Contributions will delve into the behavioral underpinnings of various trading and investment topics including trader psychology, stock momentum, earnings surprises, and anomalies. The final chapters of the book examine new research on socially responsible investing, mutual funds, and real estate investing from a behavioral perspective. Empirical evidence and current literature about each type of investment issue are featured. Cited research studies are presented in a straightforward manner focusing on the comprehension of study findings, rather than on the details of mathematical frameworks.
Heuristics And Biases
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Author : Thomas Gilovich
language : en
Publisher: Cambridge University Press
Release Date : 2002-07-08
Heuristics And Biases written by Thomas Gilovich and has been published by Cambridge University Press this book supported file pdf, txt, epub, kindle and other format this book has been release on 2002-07-08 with Education categories.
This book, first published in 2002, compiles psychologists' best attempts to answer important questions about intuitive judgment.