We find that disagreement helps explain well-known ten cross-sectional financial anomalies. Specifically, we first show that the underperformance of short legs of the anomalies is most pronounced among high disagreement stocks. This results in stronger financial anomalies among high disagreement stocks, and stronger disagreement effect among stocks in the short legs. Also, the disagreement-mimicking portfolio (return spread between low and high disagreement stocks) subsumes the profits from the long-short anomaly strategies. Finally, disagreement-induced overpricing significantly contributes to the effect of investor sentiment on financial anomalies (Stambaugh, Yu, and Yuan, 2012). Overall evidence highlights the contribution of disagreement to financial anomalies.
我们发现，这种分歧有助于解释众所周知的十种横断面金融异常现象。具体地说，我们首先表明，在高分歧股票中，异常的短腿表现不佳最为明显。这导致高分歧股票的财务异常更强，短腿股票的分歧效应更强。此外，分歧模仿投资组合(低和高分歧股票之间的回报差)包含了多空异常策略的利润。最后，分歧导致的过高定价显著促进了投资者情绪对金融异常的影响(Stambaugh, Yu, and Yuan, 2012)。总体证据突出了分歧对金融异常的影响。
{"title":"Does Disagreement Explain Financial Anomalies?","authors":"Deok-Hyeon Lee, T. Kim","doi":"10.2139/ssrn.2812408","DOIUrl":"https://doi.org/10.2139/ssrn.2812408","url":null,"abstract":"We find that disagreement helps explain well-known ten cross-sectional financial anomalies. Specifically, we first show that the underperformance of short legs of the anomalies is most pronounced among high disagreement stocks. This results in stronger financial anomalies among high disagreement stocks, and stronger disagreement effect among stocks in the short legs. Also, the disagreement-mimicking portfolio (return spread between low and high disagreement stocks) subsumes the profits from the long-short anomaly strategies. Finally, disagreement-induced overpricing significantly contributes to the effect of investor sentiment on financial anomalies (Stambaugh, Yu, and Yuan, 2012). Overall evidence highlights the contribution of disagreement to financial anomalies.","PeriodicalId":365642,"journal":{"name":"ERN: Behavioral Finance (Microeconomics) (Topic)","volume":"76 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2016-07-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"116393294","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Socially responsible investment is increasingly prevalent in financial markets and is characterized by the integration of financial and nonfinancial objectives. This paper investigates the influence of wealth concerns and moral concerns on individual investors’ decisions to invest responsibly. We conduct a unique natural field experiment of investors in an online banking context, wherein we frame responsible investment with regard to either wealth or morality and study investors’ subsequent behavior. We find that wealth framing is more effective than moral framing for both information search and investment behavior. Our study contributes to the literature by providing real-life insight into how prosocial decision making in financial markets can be promoted. This paper was accepted by John List, behavioral economics .
{"title":"Investing with Brain or Heart? A Field Experiment on Responsible Investment","authors":"Trond Døskeland, L. J. T. Pedersen","doi":"10.2139/ssrn.2040696","DOIUrl":"https://doi.org/10.2139/ssrn.2040696","url":null,"abstract":"Socially responsible investment is increasingly prevalent in financial markets and is characterized by the integration of financial and nonfinancial objectives. This paper investigates the influence of wealth concerns and moral concerns on individual investors’ decisions to invest responsibly. We conduct a unique natural field experiment of investors in an online banking context, wherein we frame responsible investment with regard to either wealth or morality and study investors’ subsequent behavior. We find that wealth framing is more effective than moral framing for both information search and investment behavior. Our study contributes to the literature by providing real-life insight into how prosocial decision making in financial markets can be promoted. This paper was accepted by John List, behavioral economics .","PeriodicalId":365642,"journal":{"name":"ERN: Behavioral Finance (Microeconomics) (Topic)","volume":"1 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2016-06-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"133833094","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
There are many investment options are available for the investors to invest. Many times investors are aware of it and few times they are not aware of it. At last, for an individual investor the important thing is the capital appreciation. If they will get the capital appreciation from only one or two investment option and if they are satisfied with it then they will not think of the other avenues of the investment, which might give them more return compare to the others. It has been observed that the overall market of interest on government securities, bank deposits and other fixed deposit has been decreasing year after steadily due to various factors, which affect the interest of the investors and the rate of interest of the investors. On the other hand, the investor’s interest is gradually shifted towards mutual funds, shares and other company securities. When compare to bank deposits the return from mutual funds is high. Likewise, when compare to mutual funds the return from equity market is very high. However, of course risk is also high in these securities. Hence, it is very important to know the awareness of the investors in financial assets and how far the investors are aware of the stock market operation, procedures and financial intermediaries. By keeping these issues in mind the present study ― investor’s awareness and preference in financial asset for investment is undertaken.
{"title":"Investor’s Perception, Awareness and Preference in Financial Asset for Investment","authors":"Hardik Shah, Rakesh Patel","doi":"10.2139/ssrn.2750323","DOIUrl":"https://doi.org/10.2139/ssrn.2750323","url":null,"abstract":"There are many investment options are available for the investors to invest. Many times investors are aware of it and few times they are not aware of it. At last, for an individual investor the important thing is the capital appreciation. If they will get the capital appreciation from only one or two investment option and if they are satisfied with it then they will not think of the other avenues of the investment, which might give them more return compare to the others. It has been observed that the overall market of interest on government securities, bank deposits and other fixed deposit has been decreasing year after steadily due to various factors, which affect the interest of the investors and the rate of interest of the investors. On the other hand, the investor’s interest is gradually shifted towards mutual funds, shares and other company securities. When compare to bank deposits the return from mutual funds is high. Likewise, when compare to mutual funds the return from equity market is very high. However, of course risk is also high in these securities. Hence, it is very important to know the awareness of the investors in financial assets and how far the investors are aware of the stock market operation, procedures and financial intermediaries. By keeping these issues in mind the present study ― investor’s awareness and preference in financial asset for investment is undertaken.","PeriodicalId":365642,"journal":{"name":"ERN: Behavioral Finance (Microeconomics) (Topic)","volume":"53 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2016-03-19","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"115253906","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Dirk Broeders, Damiaan H. J. Chen, Peter Minderhoud, Willem Schudel
This paper uses unique and detailed transaction data to analyse herding behavior among pension funds. We distinguish between weak, semi strong and strong herding behaviour. Weak herding occurs if pension funds have similar rebalancing strategies. Semi strong herding arises when pension funds react similarly to other external shocks, such as changes in regulation and exceptional monetary policy operations. Finally, strong herding means that pension funds intentionally replicate changes in the strategic asset allocation of other pension funds. Without an economic reason. We find empirical evidence supporting all three types of herding behaviour in the asset allocation of large Dutch pension funds.
{"title":"Pension Funds’ Herding","authors":"Dirk Broeders, Damiaan H. J. Chen, Peter Minderhoud, Willem Schudel","doi":"10.2139/ssrn.2741011","DOIUrl":"https://doi.org/10.2139/ssrn.2741011","url":null,"abstract":"This paper uses unique and detailed transaction data to analyse herding behavior among pension funds. We distinguish between weak, semi strong and strong herding behaviour. Weak herding occurs if pension funds have similar rebalancing strategies. Semi strong herding arises when pension funds react similarly to other external shocks, such as changes in regulation and exceptional monetary policy operations. Finally, strong herding means that pension funds intentionally replicate changes in the strategic asset allocation of other pension funds. Without an economic reason. We find empirical evidence supporting all three types of herding behaviour in the asset allocation of large Dutch pension funds.","PeriodicalId":365642,"journal":{"name":"ERN: Behavioral Finance (Microeconomics) (Topic)","volume":"46 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2016-03-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"129073966","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
This paper examines whether the results supporting a sentiment-related overpricing story is valid even after controlling for the effect of macroeconomic conditions. We no longer find the results consistent with the sentiment-related overpricing story after adjusting for the effect of several macroeconomic variables. Further, we find that the risk factors associated with macroeconomic variables are mostly priced and that a large portion of the average return spread in the anomalies is accounted for by their expected return spread implied by the risk factors. Thus, a substantial amount of the explanatory power of investor sentiment for the anomalies is attributed to investor sentiment co-varying with the risk premiums of those factors. We thus argue that the anomalies are not necessarily attributed to sentiment-related overpricing, but rather to macroeconomic conditions.
{"title":"Investor Sentiment, Anomaly, and the Macroeconomy","authors":"Dongcheol Kim, Haejung Na","doi":"10.2139/ssrn.2908006","DOIUrl":"https://doi.org/10.2139/ssrn.2908006","url":null,"abstract":"This paper examines whether the results supporting a sentiment-related overpricing story is valid even after controlling for the effect of macroeconomic conditions. We no longer find the results consistent with the sentiment-related overpricing story after adjusting for the effect of several macroeconomic variables. Further, we find that the risk factors associated with macroeconomic variables are mostly priced and that a large portion of the average return spread in the anomalies is accounted for by their expected return spread implied by the risk factors. Thus, a substantial amount of the explanatory power of investor sentiment for the anomalies is attributed to investor sentiment co-varying with the risk premiums of those factors. We thus argue that the anomalies are not necessarily attributed to sentiment-related overpricing, but rather to macroeconomic conditions.","PeriodicalId":365642,"journal":{"name":"ERN: Behavioral Finance (Microeconomics) (Topic)","volume":"105 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2016-02-28","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"132683108","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
The global success of the song, “Gangnam Style”, by the Korean rapper PSY in 2012, was an exogenous shock to investor enthusiasm for DI Corp., a Korean semiconductor manufacturer. Although DI Corp.'s business is not related to the entertainment industry, its co-CEO is the father of PSY. Using the count of flash mob and parody videos of “Gangnam Style” on YouTube from different countries and domestic regions as a proxy for the enthusiasm of individual investors, we find that individual investors became net buyers of DI Corp. stock when the attention level increased in their neighborhood (countries). Accordingly, the attention drove up the stock price by 800% without information on the stock's fundamentals.
{"title":"Investor PSY-chology Surrounding 'Gangnam Style'","authors":"Y. H. Kim, Hosung Jung","doi":"10.2139/ssrn.2292577","DOIUrl":"https://doi.org/10.2139/ssrn.2292577","url":null,"abstract":"The global success of the song, “Gangnam Style”, by the Korean rapper PSY in 2012, was an exogenous shock to investor enthusiasm for DI Corp., a Korean semiconductor manufacturer. Although DI Corp.'s business is not related to the entertainment industry, its co-CEO is the father of PSY. Using the count of flash mob and parody videos of “Gangnam Style” on YouTube from different countries and domestic regions as a proxy for the enthusiasm of individual investors, we find that individual investors became net buyers of DI Corp. stock when the attention level increased in their neighborhood (countries). Accordingly, the attention drove up the stock price by 800% without information on the stock's fundamentals.","PeriodicalId":365642,"journal":{"name":"ERN: Behavioral Finance (Microeconomics) (Topic)","volume":"54 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2016-02-20","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"127547114","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
The underlying assumptions and ethos of markets and market behavior as encapsulated and advanced by academic output serve to influence how financial markets are perceived and therefore manipulated by regulatory and supervision authorities. Thus, as well as sustaining individual academic careers and contributing to the prestige of academic institutions, academic finance, for better or for worse, continues to influence financial practice. This paper explores how academic thinking has helped shape how markets are perceived and thereby acted upon in practice.
{"title":"Academic Finance: Responsible Enquiry or Stamp Collecting?","authors":"M. Dempsey","doi":"10.2139/ssrn.2725672","DOIUrl":"https://doi.org/10.2139/ssrn.2725672","url":null,"abstract":"The underlying assumptions and ethos of markets and market behavior as encapsulated and advanced by academic output serve to influence how financial markets are perceived and therefore manipulated by regulatory and supervision authorities. Thus, as well as sustaining individual academic careers and contributing to the prestige of academic institutions, academic finance, for better or for worse, continues to influence financial practice. This paper explores how academic thinking has helped shape how markets are perceived and thereby acted upon in practice.","PeriodicalId":365642,"journal":{"name":"ERN: Behavioral Finance (Microeconomics) (Topic)","volume":"70 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2016-01-31","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"120948868","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
This paper provides original evidence on the relation between herd behavior and equity market liquidity, an issue that has been neglected when studying herd behavior towards the consensus. We use equity price data for the G5 markets, and initially we find no evidence of herding. When, however, we condition on the daily liquidity of stocks we find significant evidence of herd behavior for days with high or medium stock liquidity, for all countries and the majority of the sub-periods. The only exception is Germany for which there is very weak evidence of herding. Variance decomposition tests indicate that the variance of the average equity market liquidity is affected by return clustering, especially during the crisis and post-crisis period and this effect is more pronounced for the US market.
{"title":"The Effect of Liquidity on Herding: A Comparative Study","authors":"E. Galariotis, Styliani-Iris Krokida, S. Spyrou","doi":"10.2139/ssrn.2720152","DOIUrl":"https://doi.org/10.2139/ssrn.2720152","url":null,"abstract":"This paper provides original evidence on the relation between herd behavior and equity market liquidity, an issue that has been neglected when studying herd behavior towards the consensus. We use equity price data for the G5 markets, and initially we find no evidence of herding. When, however, we condition on the daily liquidity of stocks we find significant evidence of herd behavior for days with high or medium stock liquidity, for all countries and the majority of the sub-periods. The only exception is Germany for which there is very weak evidence of herding. Variance decomposition tests indicate that the variance of the average equity market liquidity is affected by return clustering, especially during the crisis and post-crisis period and this effect is more pronounced for the US market.","PeriodicalId":365642,"journal":{"name":"ERN: Behavioral Finance (Microeconomics) (Topic)","volume":"26 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2016-01-22","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"133815417","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2015-11-22DOI: 10.1007/978-3-319-26300-7_4
U. Weitzel, S. Rosenkranz
{"title":"Randomness and the Madness of Crowds","authors":"U. Weitzel, S. Rosenkranz","doi":"10.1007/978-3-319-26300-7_4","DOIUrl":"https://doi.org/10.1007/978-3-319-26300-7_4","url":null,"abstract":"","PeriodicalId":365642,"journal":{"name":"ERN: Behavioral Finance (Microeconomics) (Topic)","volume":"18 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2015-11-22","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"125326087","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
While most researchers agree on the existence of disposition, there still remains question regarding its cause. In this study, I investigate whether prospect theory is a potential cause by observing levels of disposition among insiders relative to information and risk. I find that while disposition increases for more volatile stocks, the increase is due strictly to an increase in the proportion of gains realized, and not in the decrease of the proportion of losses realized as well. This finding is inconsistent with the disjoint utility curve described by prospect theory, which implies risk seeking preferences for losses. Furthermore, I find that disposition doesn't decrease with superior information, a finding also inconsistent with prospect theory. Lastly, I find that disposition does decrease with financial sophistication, and that the belief in mean reversion does appear to contribute to the disposition effect, but not fully explain it.
{"title":"Disposition and Prospect Theory: Evidence from Insider Trading","authors":"Charles Favreau","doi":"10.2139/ssrn.2796804","DOIUrl":"https://doi.org/10.2139/ssrn.2796804","url":null,"abstract":"While most researchers agree on the existence of disposition, there still remains question regarding its cause. In this study, I investigate whether prospect theory is a potential cause by observing levels of disposition among insiders relative to information and risk. I find that while disposition increases for more volatile stocks, the increase is due strictly to an increase in the proportion of gains realized, and not in the decrease of the proportion of losses realized as well. This finding is inconsistent with the disjoint utility curve described by prospect theory, which implies risk seeking preferences for losses. Furthermore, I find that disposition doesn't decrease with superior information, a finding also inconsistent with prospect theory. Lastly, I find that disposition does decrease with financial sophistication, and that the belief in mean reversion does appear to contribute to the disposition effect, but not fully explain it.","PeriodicalId":365642,"journal":{"name":"ERN: Behavioral Finance (Microeconomics) (Topic)","volume":"80 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2015-11-11","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"133795633","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
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