We explore the negative relation between idiosyncratic volatility and future stock returns observed by previous researchers. We argue that, based on the observation described in prospect theory, retail investors prefer stocks with a high level of idiosyncratic volatility and are subsequently...

Assessments of investors’ risk appetite/aversion stance via indicators often yields results which seem unsatisfactory (see e.g. Illing and Aaron (2005)). Understanding how such indicators work therefore seems essential for further improvements. The present paper seeks to contribute to this...

We propose a new investor sentiment index that is aligned with the purpose of predicting the aggregate stock market. By eliminating a common noise component in sentiment proxies, the new index has much greater predictive power than existing sentiment indices both in- and out-of-sample, and the...

This study shows that (1) Australian analysts are optimistic in their forecasts and underreact to new information, (2) the continuous disclosure (CD) regime has a negative impact on forecast optimism and dispersion, (3) analyst forecast bias is associated with certain firm characteristics, (4)...

We study the use of trading strategies and their profitability in experimental asset markets with asymmetrically informed traders. We find that insiders make most of their profits from trades which are initiated by their limit orders especially at the beginning of a period and when the change in...