Results 11 - 20
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248
Price stability and volatility in markets with positive and negative . . .
- JOURNAL OF ECONOMIC DYNAMICS & CONTROL
, 2009
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Institutional investors and stock market volatility
, 2006
"... We present a theory of excess stock market volatility, in which market movements are due to trades by very large institutional investors in relatively illiquid markets. Such trades generate significant spikes in returns and volume, even in the absence of important news about fundamentals. We derive ..."
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Cited by 56 (7 self)
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We present a theory of excess stock market volatility, in which market movements are due to trades by very large institutional investors in relatively illiquid markets. Such trades generate significant spikes in returns and volume, even in the absence of important news about fundamentals. We derive the optimal trading behavior of these investors, which allows us to provide a unified explanation for apparently disconnected empirical regularities in returns, trading volume and investor size. I.
2000): Do Behavioral Biases Affect Prices
"... This paper documents strong evidence of behavioral biases among Chicago Board of Trade proprietary traders and investigates the effect these biases have on prices. Our traders appear highly loss-averse. Traders who experience morning losses are about 15 percent more likely to assume above-average af ..."
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Cited by 55 (3 self)
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This paper documents strong evidence of behavioral biases among Chicago Board of Trade proprietary traders and investigates the effect these biases have on prices. Our traders appear highly loss-averse. Traders who experience morning losses are about 15 percent more likely to assume above-average afternoon risk than traders with morning gains. This behavior has important short-term consequences for afternoon prices, as losing traders actively purchase contracts at higher prices and sell contracts at lower prices than those that prevailed previously. However, during the Þve minutes that follow these trades, prices revert strongly to their earlier levels. Consistent with these Þndings, short-term afternoon price volatility is positively related to the prevalence of morning losses among locals, but overall afternoon price volatility is not.
Ambiguity, information quality and asset pricing
- 2007, J. Finance
, 2004
"... When ambiguity averse investors process news of uncertain quality, they act as if they take a worst-case assessment of quality. As a result, they react more strongly to bad news than to good news. They also dislike assets for which information quality is poor, especially when the underlying fundamen ..."
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Cited by 52 (7 self)
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When ambiguity averse investors process news of uncertain quality, they act as if they take a worst-case assessment of quality. As a result, they react more strongly to bad news than to good news. They also dislike assets for which information quality is poor, especially when the underlying fundamentals are volatile. These effects induce negative skewness in asset returns, increase price volatility and induce ambiguity premia that depend on idiosyncratic risk in fundamentals. Moreover, shocks to information quality can have persistent negative effects on prices even if fundamentals do not change. This helps to explain the reaction of markets to events like 9/11/2001. 1
The Heterogeneous Expectations Hypothesis: Some Evidence from the Lab
, 2010
"... This paper surveys learning to forecast experiments (LtFEs) with human subjects to test theories of expectations and learning. Subjects must repeatedly forecast a market price, whose realization is an aggregation of individual forecasts. Emphasis is given to how individual forecasting rules interact ..."
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Cited by 50 (10 self)
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This paper surveys learning to forecast experiments (LtFEs) with human subjects to test theories of expectations and learning. Subjects must repeatedly forecast a market price, whose realization is an aggregation of individual forecasts. Emphasis is given to how individual forecasting rules interact at the micro level and which structure they co-create at the aggregate, macro level. In particular, we focus on the question whether the evidence from laboratory experiments is consistent with heterogeneous expectations.
Behavioral corporate finance: a survey
, 2004
"... Research in behavioral corporate finance takes two distinct approaches. The first emphasizes that investors are less than fully rational. It views managerial financing and investment decisions as rational responses to securities market mispricing. The second approach emphasizes that managers are les ..."
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Cited by 43 (8 self)
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Research in behavioral corporate finance takes two distinct approaches. The first emphasizes that investors are less than fully rational. It views managerial financing and investment decisions as rational responses to securities market mispricing. The second approach emphasizes that managers are less than fully rational. It studies the effect of nonstandard preferences and judgmental biases on managerial decisions. This survey reviews the theory, empirical challenges, and current evidence pertaining to each approach. Overall, the behavioral approaches help to explain a number of important financing and investment patterns. The survey closes with a list of open questions.
Exponential growth bias and household finance,
- Journal of Finance
, 2009
"... Abstract We document two widespread biases in how consumers perceive the costs and benefits of borrowing and saving, and explore the implications of these biases for household finance. Payment/interest bias is the systematic tendency to underestimate a loan interest rate given other loan terms. Fut ..."
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Cited by 41 (5 self)
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Abstract We document two widespread biases in how consumers perceive the costs and benefits of borrowing and saving, and explore the implications of these biases for household finance. Payment/interest bias is the systematic tendency to underestimate a loan interest rate given other loan terms. Future value bias is the systematic tendency to underestimate a future value given a present value, time horizon and periodic rate of return. We show that these biases may have a single cognitive source: exponential growth bias, the pervasive tendency to linearize exponential functions. Most importantly we show that these biases seem to affect household decisions and outcomes. Conditional on a rich set of household characteristics, a household-level metric of payment-interest bias is strongly correlated with borrowing, savings, portfolio choice, wealth and delegation. There is only weak evidence that our measure of bias merely proxies for broader financial sophistication. In all the results suggest that exponential growth bias represents a new class of behavioral biases that should be modeled in theoretical and empirical work on household finance. JEL codes: D1, D9, G11
Rational Exuberance
- Journal of Economic Literature
, 2004
"... Consider the postage stamp. As title to a future good (or, in this case, service) with monetary value, this humble object is essentially the same as a security. Its value, 37 cents, can be identiÞed with the present value of the service (delivery of a letter) to which its owner is entitled. ..."
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Cited by 37 (2 self)
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Consider the postage stamp. As title to a future good (or, in this case, service) with monetary value, this humble object is essentially the same as a security. Its value, 37 cents, can be identiÞed with the present value of the service (delivery of a letter) to which its owner is entitled.
