The conservatism bias in an emerging stock market: Evidence from Taiwan
Behavioral theories predict that investors underreact to earnings announcements stemming from the conservatism bias and overreact to a string of earnings news due to representativeness heuristic. This paper thus examines trading strategies of buying past high EPS growth stocks and selling past low EPS growth stocks over 4 to 20 quarters. The results generally support conservative reactions in the medium-term horizon, but provide little support for the over-use of representativeness heuristic on the long-term horizon. Moreover, we find that investors react differently to the consistency sequences of the two extreme earnings growth portfolios.
Year of publication: |
2009
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Authors: | Wu, Chen-Hui ; Wu, Chin-Shun ; Liu, Victor W. |
Published in: |
Pacific-Basin Finance Journal. - Elsevier, ISSN 0927-538X. - Vol. 17.2009, 4, p. 494-505
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Publisher: |
Elsevier |
Keywords: | Behavioral finance Conservatism bias Representativeness heuristic |
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