Two Essays On Investor Overconfidence And Asset Prices
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Two Essays On Investor Overconfidence And Asset Prices
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Author : Biljana Nikolic
language : en
Publisher:
Release Date : 2012
Two Essays On Investor Overconfidence And Asset Prices written by Biljana Nikolic and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2012 with Electronic Dissertations categories.
This dissertation contains two essays about the impact of investor overconfidence on asset prices. The first essay examines the role of investor overconfidence in explaining the momentum effect. Using a comprehensive sample of U.S. equity mutual funds, I develop two new measures of investor overconfidence based on the characteristics and trading patterns of the fund managers. I find that stocks held by more overconfident managers experience greater momentum profits and stronger return reversals than stocks held by less overconfident managers. The difference in momentum profits between stocks held by more- and less-overconfident managers is not a compensation for risk, nor is it attributable to stock characteristics that influence momentum. My results provide direct support for the argument that stock return momentum is caused by investor overconfidence and biased self-attribution. In the second essay I investigate the impact of investor overconfidence on firm value and cost of capital. Consistent with theoretical predictions, I show that firms held by more overconfident investors exhibit significantly higher market-to-book ratios and significantly lower implied cost of capital. Firms with more overconfident investors experience lower subsequent stock returns, consistent with prices slowly moving back to fundamental values. Moreover, I find that firms with more overconfident investors issue more equity and make more investments, consistent with corporate managers exploiting market misvaluation in making financing and investment decisions.
Two Essays On Investor Disagreement And Asset Prices
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Author : Sulei Han
language : en
Publisher:
Release Date : 2022
Two Essays On Investor Disagreement And Asset Prices written by Sulei Han and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2022 with categories.
In my second essay, I emphasize and examine the role of the consensus investor opinion in the relation between heterogeneous investor beliefs and stock prices, which is largely overlooked in the prior empirical literature. I measure investors' opinions based on financial analysts' stock recommendations and study how both investors' opinions and their disagreement jointly affect stock prices. I show that the consensus opinion is at least as important as the dispersion of opinion in predicting stock returns. When the consensus opinion is pessimistic, investor disagreement leads to lower stock returns, but the opposite is true when the consensus opinion is optimistic. Moreover, strong investor agreement predicts stock returns and largely drives the return difference between high- and low-agreement stocks. In supporting evidence, I show that both the investor opinion and its dispersion are related to short-sale constraints and strong optimistic agreement is significantly associated with binding short-sale constraints.
Three Essays On Investor Confidence
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Author : Christoph Meier
language : en
Publisher:
Release Date : 2017
Three Essays On Investor Confidence written by Christoph Meier and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2017 with Investmensts categories.
This PhD research is committed to contributing to the literature on investor overconfidence, one of the most robust findings in the field of behavioural finance. Overconfidence, a cognitive bias where decision makers tend to be overly optimistic not only about their aptitudes and skills, but also about the precision of their forecasts and information, is associated with poor decision making. Individuals suffering from overconfidence tend to be excessive stock traders, Chief Executive Officers (CEOs) who rush into mergers and acquisitions, risky drivers, naïve entrepreneurs and sloppy retirement planners. The literature yields the many attempts to link stock market phenomena to overconfidence. However, existing measures that have been used to test these hypotheses are typically only loosely related to the overconfidence of investors in their own abilities, or use proxies that lack a formal model of cognitive psychology. In the first of three research projects, I propose a measure of aggregate investor confidence that is based on a cross-disciplinary model containing determinants of confidence. The measure captures major economic events intuitively, and is statistically distinct from exiting proxies. Using a 1926-2011United States (US) sample, I find that the new measure is a better predictor of aggregate trading activity than past stock returns, which have been used in prior studies.The second research project explores the role of aggregate investor confidence in asset pricing factors. Empirical tests reveal interesting patterns. Firstly, and in line with a behavioural model by Daniel, Hirshleifer, and Subrahmanyam (1998), aggregate investor confidence partially explains variations in the profitability of momentum strategies. Additionally, aggregate investor confidence appears to play a key role in the size factor, complementing an early hypothesis by Roll (1981). Indeed, investors seem to systematically change their risk perceptions which ultimately impacts on market outcome. The third research project takes a qualitative stance. Using a new methodology proposed by Glaser, Langer, and Weber (2013), we utilise the ability to assess time series variations of individual overconfidence levels in an experimental asset market. We find that arriving signals that strongly support prior decisions cause overconfidence to prevail, while strongly opposing signals cause the effect to vanish 'overconfidence crashes'. However, previously lost overconfidence can re-emerge when these opposing signals reverse .Additionally, we find strong evidence in favour of the hypothesis by Hongaund Stein (2007) which states that investors interpret arriving information differently with opposing feedback having particularly strong effects. We also find measurement bias in the methodology proposed by Glaser et al. (2013). This is consistent with methodological concerns documented by Langnickeland Zeisberger (2016) and Biais, Hilton, Mazurier, and Pouget (2005) who report that assessment tasks using confidence intervals typically yield inflated overconfidence scores, as individuals tend to be insensitive to confidence levels in their estimations.
A Behavioral Approach To Asset Pricing
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Author : Hersh Shefrin
language : en
Publisher: Elsevier
Release Date : 2005-02-03
A Behavioral Approach To Asset Pricing written by Hersh Shefrin and has been published by Elsevier this book supported file pdf, txt, epub, kindle and other format this book has been release on 2005-02-03 with Business & Economics categories.
A Behavioral Approach to Asset Pricing Theory examines the reigning assumptions of asset pricing theory and reconstructs them to incorporate findings from behavioral finance. It constructs a solid, intact structure that challenges classic assumptions and at the same time provides a strong theory and efficient empirical tools. Building on the models developed by both traditional asset pricing theorists and behavioral asset pricing theorists, this book takes the discussion to the next step. The author provides a general behaviorally based intertemporal treatment of asset pricing theory that extends to the discussion of derivatives, fixed income securities, mean-variance efficient portfolios, and the market portfolio. The book develops a series of examples to illustrate the theoretical results. The CD-ROM contains most of the examples, worked out as Excel spreadsheets, so that a diligent reader can follow them through. Instructors might also want to use the examples to assign class exercises, asking students to modify the numbers and see what happens. * The first book to focus completely on how behavioral finance principles affect asset pricing * Hersh Shefrin is a recognized expert in behavioral finance * Behavioral finance is a growth area in finance scholarship and moving more and more into practice
Two Essays On Investor Attention And Asset Pricing
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Author : Nadia Asmaa Nafar
language : en
Publisher:
Release Date : 2015
Two Essays On Investor Attention And Asset Pricing written by Nadia Asmaa Nafar and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2015 with Real estate investment trusts categories.
Essays On Empirical Asset Pricing And Investor Behavior
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Author : Christian Westheide
language : en
Publisher:
Release Date : 2011
Essays On Empirical Asset Pricing And Investor Behavior written by Christian Westheide 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.
A Tale Of Two Investors
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Author : Giovanni Barone-Adesi
language : en
Publisher:
Release Date : 2013
A Tale Of Two Investors written by Giovanni Barone-Adesi and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2013 with categories.
We estimate investors' sentiment from option and stock prices by anchoring objective beliefs to a neoclassical pricing kernel. Our estimates of sentiment correlate well with other sentiment measures such as the Baker-Wurgler index, the Yale/Shiller crash confidence index and the Duke/CFO survey responses, and yet contain additional information. Our analysis points out three significant issues related to overconfidence. First, the Baker-Wurgler index strongly reflects excessive optimism but not overconfidence. Second, overconfidence drives the pricing kernel puzzle. Third, the dynamics of optimism and overconfidence generate a perceived negative risk-return relationship, while objectively the relationship is positive. Optimism and overconfidence about market returns co-move together, inflating asset prices in good times and exacerbating market crashes in bad times.
Handbook Of Behavioral Economics Foundations And Applications 1
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Author :
language : en
Publisher: Elsevier
Release Date : 2018-09-27
Handbook Of Behavioral Economics Foundations And Applications 1 written by and has been published by Elsevier this book supported file pdf, txt, epub, kindle and other format this book has been release on 2018-09-27 with Business & Economics categories.
Handbook of Behavioral Economics: Foundations and Applications presents the concepts and tools of behavioral economics. Its authors are all economists who share a belief that the objective of behavioral economics is to enrich, rather than to destroy or replace, standard economics. They provide authoritative perspectives on the value to economic inquiry of insights gained from psychology. Specific chapters in this first volume cover reference-dependent preferences, asset markets, household finance, corporate finance, public economics, industrial organization, and structural behavioural economics. This Handbook provides authoritative summaries by experts in respective subfields regarding where behavioral economics has been; what it has so far accomplished; and its promise for the future. This taking-stock is just what Behavioral Economics needs at this stage of its so-far successful career. Helps academic and non-academic economists understand recent, rapid changes in theoretical and empirical advances within behavioral economics Designed for economists already convinced of the benefits of behavioral economics and mainstream economists who feel threatened by new developments in behavioral economics Written for those who wish to become quickly acquainted with behavioral economics
Asset Pricing A Structural Theory And Its Applications
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Author : Bing Cheng
language : en
Publisher: World Scientific
Release Date : 2008-07-21
Asset Pricing A Structural Theory And Its Applications written by Bing Cheng and has been published by World Scientific this book supported file pdf, txt, epub, kindle and other format this book has been release on 2008-07-21 with Business & Economics categories.
Modern asset pricing models play a central role in finance and economic theory and applications. This book introduces a structural theory to evaluate these asset pricing models and throws light on the existence of Equity Premium Puzzle. Based on the structural theory, some algebraic (valuation-preserving) operations are developed in asset spaces and pricing kernel spaces. This has a very important implication leading to practical guidance in portfolio management and asset allocation in the global financial industry. The book also covers topics, such as the role of over-confidence in asset pricing modeling, relationship of the portfolio insurance with option and consumption-based asset pricing models, etc.
Asset Prices And Monetary Policy
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Author : John Y. Campbell
language : en
Publisher: University of Chicago Press
Release Date : 2008-11-15
Asset Prices And Monetary Policy written by John Y. Campbell and has been published by University of Chicago Press this book supported file pdf, txt, epub, kindle and other format this book has been release on 2008-11-15 with Business & Economics categories.
Economic growth, low inflation, and financial stability are among the most important goals of policy makers, and central banks such as the Federal Reserve are key institutions for achieving these goals. In Asset Prices and Monetary Policy, leading scholars and practitioners probe the interaction of central banks, asset markets, and the general economy to forge a new understanding of the challenges facing policy makers as they manage an increasingly complex economic system. The contributors examine how central bankers determine their policy prescriptions with reference to the fluctuating housing market, the balance of debt and credit, changing beliefs of investors, the level of commodity prices, and other factors. At a time when the public has never been more involved in stocks, retirement funds, and real estate investment, this insightful book will be useful to all those concerned with the current state of the economy.