• DOI:10.1111/0022-1082.00077
• Corpus ID: 32589687

Presentation Slides for 'Investor Psychology and Security Market Under and Overreactions'

@article{Daniel1998PresentationSF,
  title={Presentation Slides for 'Investor Psychology and Security Market Under and Overreactions'},
  author={Kent D. Daniel and David Hirshleifer and Avanidhar Subrahmanyam},
  journal={CSN: Business (Topic)},
  year={1998}
}

• Kent D. Daniel, D. Hirshleifer, Avanidhar Subrahmanyam
• Published 1 December 1998
• Economics
• CSN: Business (Topic)

We propose a theory of securities market under- and overreactions based on two well-known psychological biases: investor overconfidence about the precision of private information; and biased self-attribution, which causes asymmetric shifts in investors’ confidence as a function of their investment outcomes. We show that overconfidence implies negative long-lag autocorrelations, excess volatility, and, when managerial actions are correlated with stock mispricing, public-event-based return predictability. Biased self-attribution adds positive short-lag autocorrelations ~“momentum”!, short-run earnings “drift,” but negative correlation between future returns and long-term past stock market and accounting performance. The theory also offers several untested implications and implications for corporate financial policy. IN RECENT YEARS A BODY OF evidence on security returns has presented a sharp challenge to the traditional view that securities are rationally priced to ref lect all publicly available information. Some of the more pervasive anomalies can be classified as follows ~Appendix A cites the relevant literature!: 1. Event-based return predictability ~public-event-date average stock returns of the same sign as average subsequent long-run abnormal performance! 2. Short-term momentum ~positive short-term autocorrelation of stock returns, for individual stocks and the market as a whole!