A Bayesian approach to excess volatility, short-term underreaction and long-term overreaction during financial crises
Xu Guo, Michael McAleer, Wing-Keung Wong, Lixing Zhu
In this paper, we introduce a new Bayesian approach to explain some market anomalies during financial crises and subsequent recovery. We assume that the earnings shock of an asset follows a random walk model with and without drift to incorporate the impact of financial crises. We further assume the earning shock follows an exponential family distribution to take care of symmetric as well as asymmetric information. By using this model setting, we develop some properties on the expected earnings shock and its volatility, and establish properties of investor behavior on the stock price and its volatility during financial crises and subsequent recovery. Thereafter, we develop properties to explain excess volatility, short-term underreaction, long-term overreaction, and their magnitude effects during financial crises and subsequent recovery.
Year of publication: |
January, 2016
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Authors: | Guo, Xu ; McAleer, Michael ; Wong, Wing Keung ; Zhu, Lixing |
Publisher: |
Rotterdam : Tinbergen Institute |
Subject: | Bayesian model | representative and conservative heuristics | excess volatility | underreaction | overreaction | magnitude effects | financial crises | Anlageverhalten | Behavioural finance | Ankündigungseffekt | Announcement effect | Volatilität | Volatility | Börsenkurs | Share price | Schock | Shock | Finanzkrise | Financial crisis | Bayes-Statistik | Bayesian inference | Heuristik | Heuristics |
Saved in:
freely available
Extent: | 1 Online-Ressource (circa 28 Seiten) |
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Series: | Discussion paper / Tinbergen Institute. - Rotterdam [u.a.] : [Verlag nicht ermittelbar], ISSN 0929-0834, ZDB-ID 2435783-2. - Vol. TI 2016-003 |
Type of publication: | Book / Working Paper |
Type of publication (narrower categories): | Arbeitspapier ; Working Paper ; Graue Literatur ; Non-commercial literature |
Language: | English |
Other identifiers: | hdl:10419/130493 [Handle] |
Classification: | C11 - Bayesian Analysis ; G01 - Financial Crises ; G11 - Portfolio Choice |
Source: | ECONIS - Online Catalogue of the ZBW |
Persistent link: https://www.econbiz.de/10011441491
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