Investor Psychology and Security Market Under- and Over-Reactions
We propose a theory of securities market under- and overreactions based on two well-known psychological biases: investor overconfidence about the precision of private information; and biased self-attribution, which causes asymmetric shifts in investors' confidence as a function of their investment outcomes. We show that overconfidence implies negative long-lag autocorrelations, excess volatility, and, when managerial actions are correlated with stock mispricing, public-event-based return predictability. Biased self-attribution adds positive short-lag autocorrelations (quot;momentumquot;), short-run earnings quot;drift,quot; but negative correlation between future returns and long-term past stock market and accounting performance. The theory also offers several untested implications and implications for corporate financial policy
Year of publication: |
[2014]
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Authors: | Daniel, Kent D. |
Other Persons: | Hirshleifer, David A. (contributor) ; Subrahmanyam, Avanidhar (contributor) |
Publisher: |
[2014]: [S.l.] : SSRN |
Description of contents: | Abstract [papers.ssrn.com] |
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