Investor Psychology and Security Market Under- and Overreactions
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 ("momentum"), short-run earnings "drift," 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. Copyright The American Finance Association 1998.
Year of publication: |
1998
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Authors: | Daniel, Kent ; Hirshleifer, David ; Subrahmanyam, Avanidhar |
Published in: |
Journal of Finance. - American Finance Association - AFA, ISSN 1540-6261. - Vol. 53.1998, 6, p. 1839-1885
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Publisher: |
American Finance Association - AFA |
Saved in:
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