We offer an explanation for the forward premium puzzle in foreign exchange markets based upon investor overconfidence. In the model, overconfident individuals overreact to their information about future inflation, which causes greater overshooting in the forward rate than in the spot rate. Thus,...

We find a positive association between short selling and accruals during 1988--2009, and that asymmetry between the up- and downsides of the accrual anomaly is stronger when constraints on short arbitrage are more severe (low availability of loanable shares as proxied by institutional holdings)....

We examine how experience affects the decisions of individual investors and institutions in IPO auctions to bid in subsequent auctions, and their bidding returns. We track bidding histories for all 31,476 individual investors and 1,232 institutional investors across all 84 IPO auctions during...

The disposition effect (greater realization of winners than losers) is often taken as proof that investors have an inherent preference for realizing winners over losers. In contrast, we find that the disposition effect is not primarily driven by realization preference. The probability of selling...

Behavioral theories suggest that investor misperceptions and market mispricing will be correlated across firms. We use equity and debt financing to identify common misvaluation across firms. A zero-investment portfolio (UMO, undervalued minus overvalued) built from repurchase and issue firms...

Facilitation of Competing Bids and the Price of a Takeover Target Abstract Initially uninformed bidders must incur costs to learn their (independent) valuations of a potential takeover target. The first bidder makes either a preemptive bid that will deter the second bidder from investigating, or...

Parity, and whether the test is cross-sectional versus time series.

We test whether and how equity overvaluation affects corporate financing decisions using an ex ante misvaluation measure that filters firm scale and growth prospects from market price. We find that equity issuance and total financing increase with equity overvaluation; but only among overvalued...

We propose that owing to limited investor attention and skepticism of complexity, firms with greater innovative originality (IO) will be undervalued, especially for firms with higher valuation uncertainty, lower attention, and greater sensitivity of future profitability to IO. We find that IO...