CEO overconfidence, lottery preference and the cross-section of stock returns
Journal
Finance Research Letters
Date Issued
2023
Author(s)
Abstract
Unlike existing studies that mostly focus on investors’ biased behavior in explaining the lottery-related anomaly, our study highlights the importance of CEO overconfidence for the anomaly. We propose that CEO overconfidence could enhance investors’ confidence in the stock's price even if the stock exhibits lottery-like payoffs. As a result, lottery stocks with overconfident CEOs are less prone to subsequent underperformance. Based on portfolio-based analyses and cross-sectional regressions, we provide robust evidence to confirm this hypothesis. Our study has important implications to the literature on both lottery-related anomaly and CEO overconfidence.
Subjects
CEO overconfidence | Lottery preference | Maximum daily returns | Stock returns
SDGs
Type
journal article