Recent studies propose that limited investor attention causes market underreactions. This paper directly tests this explanation by measuring the information load faced by investors. The "investor distraction hypothesis" holds that extraneous news inhibits market reactions to relevant news. We...

We examined reference point adaptation following gains or losses in security trading using participants from China, Korea, and the US. In both questionnaire studies and trading experiments with real money incentives, reference point adaptation was larger for Asians than for Americans. Subjects...

Purpose – Sometimes resources are badly employed because of coordination failures. Actions by decision makers that affect the likelihood of such failures are sometimes said to cause “systemic risk.” This paper seeks to consider the externality in the choice of ex ante risk management...

Futures hedging and pricing are examined in a model with two consumption goods, stochastic output, and sequential information arrival. Positive (negative) complementarity in consumer preferences promotes greater futures risk premia. The partial equilibrium conclusion that risk premia are a...

If investors have limited attention, then accounting outcomes that saliently highlight positive aspects of a firm's performance will promote high market valuations. When cumulative accounting value added (net operating income) over time outstrips cumulative cash value added (free cash flow), it...

Psychological evidence and casual intuition predict that sunny weather is associated with upbeat mood. This paper examines the relation between morning sunshine at a country's leading stock exchange and market index stock returns that day at 26 stock exchanges internationally from 1982- 97....

We document considerable return comovement associated with accruals after controlling for other common factors. An accrual-based factor-mimicking portfolio has a Sharpe ratio of 0.15, higher than that of the market factor or the HML factor of Fama and French (1993). In time series regressions, a...

This paper analyzes the interaction of storage and futures trading when producers make decisions covering many harvests. In this more general context, by examining how risks are distributed between storers and growers, results are obtained that differ dramatically from previous models in the...

Recent research has proposed several ways in which overconfident traders can persist in competition with rational traders. This paper offers an additional reason: overconfident traders do better than purely rational traders at exploiting mispricing caused by liquidity or noise traders. We...

We examine the effects of bidding experience on two groups of investors – individuals and institutions – in terms of their decisions to bid again and their bidding returns. Bidding histories are tracked for all 31,376 individual investors and 1,232 institutional investors across all 84 IPO...