|Title:||An empirical evaluation of the overconfidence hypothesis||Authors:||WEN-I CHUANG
Lee, Bong Soo
|Keywords:||Behavioral finance | Over (under) reaction | Overconfidence | Trading volume | Volatility||Issue Date:||1-Jan-2006||Publisher:||ELSEVIER SCIENCE BV||Journal Volume:||30||Journal Issue:||9||Start page/Pages:||2489||Source:||Journal of Banking and Finance||Abstract:||
Recently, several behavioral finance models based on the overconfidence hypothesis have been proposed to explain anomalous findings, including a short-term continuation (momentum) and a long-term reversal in stock returns. We characterize the overconfidence hypothesis by the following four testable implications: First, if investors are overconfident, they overreact to private information and underreact to public information. Second, market gains make overconfident investors trade more aggressively in subsequent periods. Third, excessive trading of overconfident investors in securities markets contributes to the observed excessive volatility. Fourth, overconfident investors underestimate risk and trade more in riskier securities. To document the presence of overconfidence in financial markets, we empirically evaluate these four hypotheses using aggregate data. Overall, we find empirical evidence in support of the four hypotheses. © 2006 Elsevier B.V. All rights reserved.
|Appears in Collections:||財務金融學系|
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