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 Behavioral Finance and Wealth Management written by Michael M. Pompian and published by John Wiley & Sons. This book was released on 2011-01-31 with total page 393 pages. Available in PDF, EPUB and Kindle. Book excerpt: "Pompian is handing you the magic book, the one that reveals your behavioral flaws and shows you how to avoid them. The tricks to success are here. Read and do not stop until you are one of very few magicians." —Arnold S. Wood, President and Chief Executive Officer, Martingale Asset Management Fear and greed drive markets, as well as good and bad investment decision-making. In Behavioral Finance and Wealth Management, financial expert Michael Pompian shows you, whether you're an investor or a financial advisor, how to make better investment decisions by employing behavioral finance research. Pompian takes a practical approach to the science of behavioral finance and puts it to use in the real world. He reveals 20 of the most prominent individual investor biases and helps you properly modify your asset allocation decisions based on the latest research on behavioral anomalies of individual investors.

Download or read book Finance for Normal People written by Meir Statman and published by Oxford University Press. This book was released on 2017 with total page 489 pages. Available in PDF, EPUB and Kindle. Book excerpt: Finance for Normal People teaches behavioral finance to people like you and me - normal people, neither rational nor irrational. We are consumers, savers, investors, and managers - corporate managers, money managers, financial advisers, and all other financial professionals. The book guides us to know our wants-including hope for riches, protection from poverty, caring for family, sincere social responsibility and high social status. It teaches financial facts and human behavior, including making cognitive and emotional shortcuts and avoiding cognitive and emotional errors such as overconfidence, hindsight, exaggerated fear, and unrealistic hope. And it guides us to banish ignorance, gain knowledge, and increase the ratio of smart to foolish behavior on our way to what we want. These lessons of behavioral finance draw on what we know about us-normal people-including our wants, cognition, and emotions. And they draw on the roles of these factors in saving and spending, portfolio construction, returns we can expect from our investments, and whether we can hope to beat the market. Meir Statman, a founder of behavioral finance, draws on his extensive research and the research of many others to build a unified structure of behavioral finance. Its foundation blocks include normal behavior, behavioral portfolio theory, behavioral life-cycle theory, behavioral asset pricing theory, and behavioral market efficiency.

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 What Investors Really Want Know What Drives Investor Behavior and Make Smarter Financial Decisions written by Meir Statman and published by McGraw Hill Professional. This book was released on 2010-11-19 with total page 305 pages. Available in PDF, EPUB and Kindle. Book excerpt: A pioneer in the field of behavioral finance presents an investment guide based on what really drives investors Perfectly timed to give readers a real edge for investing in post-crash markets Author is a leading authority on the theory and application of behavioral finance and a fixture in The Wall Street Journal and other leading media outlets Poised to become the definitive text on how investors and managers make financial decisions—and how these decisions are reflected in financial markets

Download or read book Paris Princeton Lectures on Mathematical Finance 2003 written by Tomasz R. Bielecki and published by Springer. This book was released on 2004-08-30 with total page 259 pages. Available in PDF, EPUB and Kindle. Book excerpt: The Paris-Princeton Lectures in Financial Mathematics, of which this is the second volume, will, on an annual basis, publish cutting-edge research in self-contained, expository articles from outstanding - established or upcoming! - specialists. The aim is to produce a series of articles that can serve as an introductory reference for research in the field. It arises as a result of frequent exchanges between the finance and financial mathematics groups in Paris and Princeton. This volume presents the following articles: "Hedging of Defaultable Claims" by T. Bielecki, M. Jeanblanc, and M. Rutkowski; "On the Geometry of Interest Rate Models" by T. Björk; "Heterogeneous Beliefs, Speculation and Trading in Financial Markets" by J.A. Scheinkman, and W. Xiong.

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 Inefficient Markets written by Andrei Shleifer and published by OUP Oxford. This book was released on 2000-03-09 with total page 225 pages. Available in PDF, EPUB and Kindle. Book excerpt: The efficient markets hypothesis has been the central proposition in finance for nearly thirty years. It states that securities prices in financial markets must equal fundamental values, either because all investors are rational or because arbitrage eliminates pricing anomalies. This book describes an alternative approach to the study of financial markets: behavioral finance. This approach starts with an observation that the assumptions of investor rationality and perfect arbitrage are overwhelmingly contradicted by both psychological and institutional evidence. In actual financial markets, less than fully rational investors trade against arbitrageurs whose resources are limited by risk aversion, short horizons, and agency problems. The book presents and empirically evaluates models of such inefficient markets. Behavioral finance models both explain the available financial data better than does the efficient markets hypothesis and generate new empirical predictions. These models can account for such anomalies as the superior performance of value stocks, the closed end fund puzzle, the high returns on stocks included in market indices, the persistence of stock price bubbles, and even the collapse of several well-known hedge funds in 1998. By summarizing and expanding the research in behavioral finance, the book builds a new theoretical and empirical foundation for the economic analysis of real-world markets.

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 Behavioral Finance written by H. Kent Baker and published by John Wiley & Sons. This book was released on 2010-10-01 with total page 1184 pages. Available in PDF, EPUB and Kindle. Book excerpt: A definitive guide to the growing field of behavioral finance This reliable resource provides a comprehensive view of behavioral finance and its psychological foundations, as well as its applications to finance. Comprising contributed chapters written by distinguished authors from some of the most influential firms and universities in the world, Behavioral Finance provides a synthesis of the most essential elements of this discipline, including psychological concepts and behavioral biases, the behavioral aspects of asset pricing, asset allocation, and market prices, as well as investor behavior, corporate managerial behavior, and social influences. Uses a structured approach to put behavioral finance in perspective Relies on recent research findings to provide guidance through the maze of theories and concepts Discusses the impact of sub-optimal financial decisions on the efficiency of capital markets, personal wealth, and the performance of corporations Behavioral finance has quickly become part of mainstream finance. If you need to gain a better understanding of this topic, look no further than this book.

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 Cracking the Emerging Markets Enigma written by G. Andrew Karolyi and published by Oxford University Press, USA. This book was released on 2015 with total page 313 pages. Available in PDF, EPUB and Kindle. Book excerpt: Cracking the Emerging Markets Enigma outlines a rigorous, comprehensive, and practical framework for evaluating the opportunities and, more importantly, the risks of investing in emerging markets. Built on a foundation of sound research on foreign direct and portfolio capital flows, Andrew Karolyi's proposed system of evaluation incorporates multiple dimensions of the potential risks faced by prospective investors in an empirically coherent framework.

Download or read book Behavioral Corporate Finance written by Hersh Shefrin and published by College Ie Overruns. This book was released on 2017-04-16 with total page 300 pages. Available in PDF, EPUB and Kindle. Book excerpt:

Download or read book Speculation Trading and Bubbles written by José A. Scheinkman and published by Columbia University Press. This book was released on 2014-07-08 with total page 137 pages. Available in PDF, EPUB and Kindle. Book excerpt: As long as there have been financial markets, there have been bubbles—those moments in which asset prices inflate far beyond their intrinsic value, often with ruinous results. Yet economists are slow to agree on the underlying forces behind these events. In this book José A. Scheinkman offers new insight into the mystery of bubbles. Noting some general characteristics of bubbles—such as the rise in trading volume and the coincidence between increases in supply and bubble implosions—Scheinkman offers a model, based on differences in beliefs among investors, that explains these observations. Other top economists also offer their own thoughts on the issue: Sanford J. Grossman and Patrick Bolton expand on Scheinkman's discussion by looking at factors that contribute to bubbles—such as excessive leverage, overconfidence, mania, and panic in speculative markets—and Kenneth J. Arrow and Joseph E. Stiglitz contextualize Scheinkman's findings.