This survey introduces and reviews the field of behavioral finance. It outlines the traditional finance approach, which builds upon rational acting investors, its assumptions, and its shortcomings. Moreover, it surveys the main findings from psychology and sociology that contrast with this...

Behavioural Finance has emerged as a serious contender to the Efficient Markets Hypothesis in the study of asset pricing and capital markets. A major tenet on which it rests is the investor's aversion to loss-induced regret and the consequent tendency to hold losing stocks too long and sell...

We examine the trading behavior of institutional investors in the Exchange Traded Fund (ETF) market from 1993 to 2007. We concentrate on the relation between cross-sectional institutional ETF ownership and returns, particularly on the relation between changes in ownership and future returns,...

Passive investing, particularly in emerging markets, has become an increasingly popular means of quick, “diversified” exposure to a particular segment of the markets. Defensive investors, as Benjamin Graham noted, would be best served owning a diversified list of leading companies. Yet it's...

The correlation of returns for various equity asset classes has been high. In addition, the range or "dispersion" of returns across asset classes - and across sectors within those asset classes - has been low. These factors have made it difficult for active managers to outperform. But dispersion...

The local bias puzzle was originally proposed from the analysis of investors' investment portfolios. We test and confirm the hypothesis that local bias has already existed in investor attention subconsciously regardless of their investment. In contrast to literature which focuses on investment...

The expectations management literature has so far focused on firms meeting the analyst consensus forecast — the expectations of analysts as a group — at earnings announcements. In this study we argue that investors may use individual analyst forecasts as additional benchmarks in evaluating...

The battle between proponents of the Efficient Markets Hypothesis and champions of behavioral finance has never been more pitched, and little consensus exists as to which side is winning or the implications for investment management and consulting. In this article, I review the case for and...

We perform an asset market experiment in order to investigate whether overconfidence induces trading. We investigate three manifestations of overconfidence: calibration-based overconfidence, the better-than-average effect and illusion of control. Novelly, the measure employed for...

Stock momentum, long-term reversal, and other past return characteristics that predict future returns also predict future realized betas, suggesting these characteristics capture time-varying risk compensation. We formalize this argument with a conditional factor pricing model. Using...