Download or read book Investor Overconfidence and Trading Volume written by Meir Statman and published by . This book was released on 2006 with total page 52 pages. Available in PDF, EPUB and Kindle. Book excerpt: High market-wide returns make some investors overconfident because they incorrectly attribute the gains to their stock picking talents. Investors who are subject to biased self-attribution increase their trading in subsequent periods in models by Gervais and Odean (2001) and Odean (1998a). We use a vector autoregressive and impulse-response function methodology to investigate the trading volume implication of the overconfidence hypothesis. We find empirical support for the overconfidence hypothesis as well as the disposition affect of Shefrin and Statman (1985). Specifically, market-wide trading activity in NYSE/AMEX shares is positively correlated to past shocks in market return, with the turnover response lasting months and perhaps years. This increase (decrease) in market-wide trading activity subsequent to bull (bear) markets can be explained by either the overconfidence hypothesis or the disposition effect. Vector autoregressions on individual stocks indicate that volume responds to past shocks in individual security return, which prior researchers have interpreted as evidence of disposition effect trading. However, we show that individual security trading activity is even more responsive to past shocks in the market-wide return, which we interpret as evidence of the overconfidence hypothesis. The empirical lead-lag relationships between returns and trading activity as measured by turnover are both statistically and economically significant and an important empirical characteristic of the domestic equity market. The trading volume patterns we document are in addition to well-known volume-volatility relationships and turn-of-the-year effects, and are robust to a number of specification alternatives.
Download or read book Overconfidence and Trading Volume written by Markus Glaser and published by . This book was released on 2007 with total page 51 pages. Available in PDF, EPUB and Kindle. Book excerpt: Theoretical models predict that overconfident investors will trade more than rational investors. We directly test this hypothesis by correlating individual overconfidence scores with several measures of trading volume of individual investors. Approximately 3,000 online broker investors were asked to answer an internet questionnaire which was designed to measure various facets of overconfidence (miscalibration, volatility estimates, better than average effect). The measures of trading volume were calculated by the trades of 215 individual investors who answered the questionnaire. We find that investors who think that they are above average in terms of investment skills or past performance (but who did not have above average performance in the past) trade more. Measures of miscalibration are, contrary to theory, unrelated to measures of trading volume. This result is striking as theoretical models that incorporate overconfident investors mainly motivate this assumption by the calibration literature and model overconfidence as underestimation of the variance of signals. In connection with other recent findings, we conclude that the usual way of motivating and modeling overconfidence which is mainly based on the calibration literature has to be treated with caution. Moreover, our way of empirically evaluating behavioral finance models - the correlation of economic and psychological variables and the combination of psychometric measures of judgment biases (such as overconfidence scores) and field data - seems to be a promising way to better understand which psychological phenomena actually drive economic behavior.
Download or read book Overconfidence Bias Trading Volume and Returns Volatility written by Muhammad Fayyaz Sheikh and published by . This book was released on 2013 with total page 12 pages. Available in PDF, EPUB and Kindle. Book excerpt: Investor overconfidence has been proposed to explain various anomalous findings in security markets. The theory of investor overconfidence provides testable implications assuming investor overestimation of their abilities and private information and biased self-attributions. High (low) trading activity following market gains (losses) and excessive volatility are the two testable implications among others. We test these implications in Karachi Stock Exchange, Pakistan using multivariate time series analysis. Consistent with overconfidence hypothesis predictions, we find significant positive relationship between current trading activity and past returns after controlling for returns dispersion and returns volatility. However, we do not find significant positive contribution of overconfidence related trading to conditional returns volatility.
Download or read book Freiherrlich Carl von Rothschild sche ffentliche Freibibliothek written by and published by . This book was released on 1888 with total page 8 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Download or read book Investor Overconfidence Margin Trade and Market Efficiency written by Mingsheng Li and published by . This book was released on 2017 with total page 49 pages. Available in PDF, EPUB and Kindle. Book excerpt: We investigate the effect of investor overconfidence and margin trades on market efficiency around a market crash. We find that the price delay in a pre-crash period is about twice the price delay in a post-crash period. After a market crash, investors become more sensitive to market movements, resulting in small price delay and high price synchronicity. Margin traders not only trade on market trends but also put additional force on it, escalating the pyramiding and de-pyramiding effects caused by the shift in market sentiment. Finally, our results show that negative information travels slowly only when investors are overconfident.
Download or read book Investor Overconfidence and Market Outcomes written by Markus Glaser and published by . This book was released on 2003 with total page 169 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Download or read book The Danger of Investor Overconfidence written by Mingsheng Li and published by . This book was released on 2017 with total page 46 pages. Available in PDF, EPUB and Kindle. Book excerpt: We investigate how investor overconfidence and margin trades affect market efficiency around a market crash. We find that the price delay before a crash is about twice the price delay after a crash and that negative information travels slowly only when market sentiment is high because of investor overconfidence and attribution bias. After a market crash, constrained investors become more sensitive to market movements, resulting in high price synchronicity. In addition, margin traders not only trade on market trends but also generate additional momentum in prices, escalating the pyramiding and de-pyramiding effects caused by the shift in market sentiment.
Download or read book Sensation Seeking Overconfidence and Trading Activity written by Mark Grinblatt and published by . This book was released on 2006 with total page 23 pages. Available in PDF, EPUB and Kindle. Book excerpt: This study analyzes the role that two psychological attributes - sensation seeking and overconfidence - play in the tendency of investors to trade stocks. Equity trading data are combined with data from an investor's tax filings, driving record, and psychological profile. We use the data to construct measures of overconfidence and sensation seeking tendencies. Controlling for a host of variables, including wealth, income, age, number of stocks owned, marital status, and occupation, we find that overconfident investors and those investors most prone to sensation seeking trade more frequently.
Download or read book Essays on Investor Behavior written by Terrance Thomas Odean and published by . This book was released on 1997 with total page 288 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Download or read book Investor Overconfidence and the Impact on Stock Returns Liquidity and Price Efficiency written by 劉名育 and published by . This book was released on 2019 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt:
Download or read book Do Investors Trade Too Much written by Terrance Odean and published by . This book was released on 2000 with total page 41 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper takes a first step towards demonstrating that overall trading volume in equity markets is excessive, by showing that it is excessive for a particular group of investors: those with discount brokerage accounts. One possible cause of excessive trading is overconfidence. Overconfident investors will trade too frequently, that is, the gains overconfident investors realize through trade will be less than they anticipate and may not even offset the costs of trading. By analyzing trading records for 10,000 accounts at a large discount brokerage house, I test whether the securities these investors purchase outperform those they sell by enough to cover the costs of trading. I find the surprising result that, on average, the securities they purchase actually underperform those they sell. This is the case even when trading is not apparently motivated by liquidity demands, tax-loss selling, portfolio rebalancing, or a move to lower-risk securities. I examine return patterns before and after transactions. Return patterns before purchases and sales can be explained by the difficulty of the search for securities to buy, investors' tendency to let their attention be directed by outside sources, the disposition effect, and investors' reluctance to sell short.
Download or read book Under and Over Reaction from Relative and Aggregate Overconfidence written by Tao Lin and published by . This book was released on 2004 with total page 48 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper offers a continuous time, general equilibrium model where a risky asset is traded among risk-averse overconfident investors. Two kinds of overconfidence are introduced: investors exhibit relative overconfidence if each investor believes her model is better than others' and aggregate overconfidence if they believe signals have more information content than those in the true model. Relative overconfidence creates market price underreaction, while aggregate overconfidence generates overreaction. Excess trading volume is generated from relative overconfidence but not aggregate overconfidence. A high equity premium and excess price change volatility result from aggregate overconfidence in the early stages of investors' extrapolation of information, but not in the steady state.
Download or read book Volume Volatility Price and Profit When All Traders are Above Average written by Terrance Odean and published by . This book was released on 1998 with total page 52 pages. Available in PDF, EPUB and Kindle. Book excerpt: People are overconfident. Overconfidence affects financial markets. How depends on who in the market is overconfident and on how information is distributed. This paper examines markets in which price-taking traders, a strategic-trading insider, and risk-averse market-makers are overconfident. Overconfidence increases expected trading volume, increases market depth, and decreases the expected utility of overconfident traders. Its effect on volatility and price quality depend on who is overconfident. Overconfident traders can cause markets to underreact to the information of rational traders. Markets also underreact to abstract, statistical, and highly relevant information, while they overreact to salient, anecdotal, and less relevant information.
Download or read book Overconfidence and Investor Size written by Anders Ekholm and published by . This book was released on 2002 with total page 24 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Download or read book Investors Trading Activity written by Dimitrios Kourditis and published by . This book was released on 2012 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: Research studies (such as Kiyilar and Acar, 2009) have supported that investors act in irrational ways in some of their investment decisions, and financial models have failed to explain the real investors' behaviour. Investors' trading activity is influenced by personality traits and psychological biases (overconfidence, risk tolerance, self-monitoring, and social influence) and is also affected by mood. The aim of the thesis is to confirm these assumptions by developing and testing a model (using SEM analysis) which would incorporate and examine all of them simultaneously, as it actually happens in real life. The research population includes 345 Greek investors, including individuals' as w~rt' 'as professional' investors who work in various investment companies located all over the country. The data collection included two surveys. The first survey investigated psychological biases and personality traits to find if they correlate with stock trading performance, whereas the second survey examined the psychological predisposition to find whether mood affects stock trading performance. The results have verified that these psychological biases, personality traits and mood, influence investors' trading performance, frequency and volume, providing a complete research model. Another objective of this study was to understand the profile of Greek investors and test if there are differences among them as far as stock trading behaviour (performance, volume and frequency) is concerned. Cluster analysis (three-cluster solution) identified three investors' profiles, the low, moderate and high investor profile, and revealed that high profile investors (with the higher scores on the psychological biases and personality traits) trade high volumes of stocks, make transactions more frequently and earn higher stock profits compared to investors belonging to the other two profiles. A comparative analysis between professionals and individuals has shown that professional investors have higher performance than individuals as far as stock trading is concerned. The results have also shown that professional investors score high on the psychological biases and personality traits examined. The second stage of the study has required iterative data using questions that depict psychological predisposition in a dynamic way. The cluster analysis of 1 Non-professionals 2 Portfolio analysts and stockbrokers 1 the second data set has identified and compared different mood status highlighting differences among groups as far as their mood status and their stock trading performance is concerned. This study has provided evidence supporting the significance of some subjective factors, such as personality traits, psychological biases and emotions in investors' trading activity. The findings have shown that investors who have specific characteristics such as overconfidence, high self-monitoring, risk intolerance, positive mood and sociability are probably better on stock trading performance. ~'A This thesis could enable individual investors and inv;stment advisors, to construct a framework of the profile that contributes to high stock trading performance (a stock trading performance guide). Therefore, investors could possibly ensure the stock trading performance, to the extent that this depends on their profile. Moreover, the study contributes to the field providing a complete and verified research model concerning investors' trading behaviour. Additionally, a contribution of this study is the extensive literature review in the field of behavioural finance which provides a better understanding of behavioural factors and a framework for academics, researchers, individual and professional investors. Keywords: Behavioural Finance; Trading Behaviour; Trading Activity; Model Analysis. JEL Classification: C30, D14, Gll, 016.
Download or read book Boys Will Be Boys written by Brad M. Barber and published by . This book was released on 2008 with total page 39 pages. Available in PDF, EPUB and Kindle. Book excerpt: Theoretical models of financial markets built on the assumption that some investors are overconfident yield one central prediction: overconfident investors will trade too much. We test this prediction by partitioning investors on the basis of a variable that provides a natural proxy for overconfidence--gender. Psychological research has established that men are more prone to overconfidence than women. Thus, models of investor overconfidence predict that men will trade more and perform worse than women. Using account data for over 35,000 households from a large discount brokerage firm, we analyze the common stock investments of men and women from February 1991 through January 1997. Consistent with the predictions of the overconfidence models, we document that men trade 45 percent more than women and earn annual risk-adjusted net returns that are 1.4 percent less than those earned by women. These differences are more pronounced between single men and single women; single men trade 67 percent more than single women and earn annual risk-adjusted net returns that are 2.3 percent less than those earned by single women.
Download or read book A Study of Existence of Overconfidence Biases Among Investors and Its Impact on Investment Decision written by Bhoomika Trehan and published by . This book was released on 2018 with total page 15 pages. Available in PDF, EPUB and Kindle. Book excerpt: In current scenario, behavioral finance plays an important role in investment decision making. Investment decision has become a complex decision with the availability of investment choices, accessibility of information and increased size of the market. There are various options or choices available for the investors in the market while taking investment decisions. Decision making means final selection of the best alternatives which are available for the investors in the market; some investment decision are easy and other investment decision are the complex overconfidence bias among the investors of Lucknow. Overconfidence variables were identified with extensive literature review as selfattribution, optimism, better than average effect, miscalibration, illusion of control, trading frequency and trading experience. To identify the influence of these variables in investor's decision making, structured questionnaire based on 5 point Likert Scale was used. With relevant statistical tools, it was found that investors are overconfident about their investment decisions, skills, knowledge, ability to choose stocks, control of portfolio, future investment plans and views about the stock market. and require the multiple approach.
