Hardback
The Psychology of World Equity Markets
Mainstream financial economics has largely ignored the complex cognitive and motivational factors that guide investor trading decisions and that influence the structure and dynamics of world equity markets. Research shows, however, that investor psychology is reliably linked to predictable momentum and reversals in stock prices and, more generally, to stock market bubbles.
More Information
Critical Acclaim
Contributors
Contents
More Information
Mainstream financial economics has largely ignored the complex cognitive and motivational factors that guide investor trading decisions and that influence the structure and dynamics of world equity markets. Research shows, however, that investor psychology is reliably linked to predictable momentum and reversals in stock prices and, more generally, to stock market bubbles.
The first volume reviews the scientific debate between leading behavioral scientists and proponents of rational markets and rational economic man. It also summarizes key elements of a new psychological theory of stock prices with special emphasis on the formation of investor beliefs and the quality of judgment.
The articles in the second Volume support the behavioral approach with international evidence collected from many sources. Major anomalies in financial decision-making and in the behavior of equity markets are interpreted in the context of new experimental, empirical, and theoretical research.
The first volume reviews the scientific debate between leading behavioral scientists and proponents of rational markets and rational economic man. It also summarizes key elements of a new psychological theory of stock prices with special emphasis on the formation of investor beliefs and the quality of judgment.
The articles in the second Volume support the behavioral approach with international evidence collected from many sources. Major anomalies in financial decision-making and in the behavior of equity markets are interpreted in the context of new experimental, empirical, and theoretical research.
Critical Acclaim
‘This marvellous collection features both breadth and depth, describing the psychology that affects retail investors and professional investors world wide, in their behaviour both as individuals and in crowds.’
– Hersh Shefrin, Santa Clara University, US
‘In little over a decade the behavioural finance approach to understanding markets has risen to challenge the mathematical models that have provided the mainstay of finance theory since the 1950s. This fascinating collection of papers documents an intellectual revolution, from its beginnings in the systematization of biases in individual and collective decision making, through the demonstration of these biases in the financial markets, to the formulation of coherent people-centred theories of investment. If you want to understand how and why amateur investors misinterpret information, why professional analysts make bad forecasts, why bubbles and crashes happen, and why some stock prices are sometimes predictable, the answers are here.’
– Roy Batchelor, Cass Business School, London, UK
– Hersh Shefrin, Santa Clara University, US
‘In little over a decade the behavioural finance approach to understanding markets has risen to challenge the mathematical models that have provided the mainstay of finance theory since the 1950s. This fascinating collection of papers documents an intellectual revolution, from its beginnings in the systematization of biases in individual and collective decision making, through the demonstration of these biases in the financial markets, to the formulation of coherent people-centred theories of investment. If you want to understand how and why amateur investors misinterpret information, why professional analysts make bad forecasts, why bubbles and crashes happen, and why some stock prices are sometimes predictable, the answers are here.’
– Roy Batchelor, Cass Business School, London, UK
Contributors
50 articles, dating from 1985 to 2002
Contributors include: P. Andreassen, G. Gigerenzer, N. Jegadeesh, D. Kahneman, G. Loewenstein, H. Shefrin, R. Shiller, V. Smith, R. Thaler
Contributors include: P. Andreassen, G. Gigerenzer, N. Jegadeesh, D. Kahneman, G. Loewenstein, H. Shefrin, R. Shiller, V. Smith, R. Thaler
Contents
Contents:
Volume I
Acknowledgements
Introduction Werner De Bondt
PART I FOUNDATIONS
1. Kent Daniel, David Hirshleifer and Siew Hong Teoh (2002), ‘Investor Psychology in Capital Markets: Evidence and Policy Implications’
2. Daniel Kahneman and Mark W. Riepe (1998), ‘Aspects of Investor Psychology: Beliefs, Preferences, and Biases Investment Advisors Should Know About’
3. Hersh Shefrin and Meir Statman (2000), ‘Behavioral Portfolio Theory’
4. Werner F.M. De Bondt and Richard Thaler (1985), ‘Does the Stock Market Overreact?’
5. Alon Brav and J.B. Heaton (2002), ‘Competing Theories of Financial Anomalies’
6. Werner De Bondt (2002), ‘Discussion of “Competing Theories of Financial Anomalies”’
7. Dilip Abreu and Markus K. Brunnermeier (2002), ‘Synchronization Risk and Delayed Arbitrage’
8. Vernon L. Smith, Gerry L. Suchanek and Arlington W. Williams (1988), ‘Bubbles, Crashes, and Endogenous Expectations in Experimental Spot Asset Markets’
9. Gerd Gigerenzer and Daniel G. Goldstein (1996), ‘Reasoning the Fast and Frugal Way: Models of Bounded Rationality’
PART II ASPECTS OF INVESTOR PSYCHOLOGY
10. Paul B. Andreassen (1987), ‘On the Social Psychology of the Stock Market: Aggregate Attributional Effects and the Regressiveness of Prediction’
11. Nicholas DiFonzo and Prashant Bordia (1997), ‘Rumor and Prediction: Making Sense (but Losing Dollars) in the Stock Market’
12. Don A. Moore, Terri R. Kurtzberg, Craig R. Fox and Max H. Bazerman (1999), ‘Positive Illusions and Forecasting Errors in Mutual Fund Investment Decisions’
13. Robert Bloomfield and Jeffrey Hales (2002), ‘Predicting the Next Step of a Random Walk: Experimental Evidence of Regime-shifting Beliefs’
14. Richard Gonzalez (1994), ‘When Words Speak Louder Than Actions: Another’s Evaluations Can Appear More Diagnostic Than Their Decisions’
15. D. Eric Hirst, Lisa Koonce and Paul J. Simko (1995), ‘Investor Reactions to Financial Analysts’ Research Reports’
16. George F. Loewenstein, Elke U. Weber, Christopher K. Hsee and Ned Welch (2001), ‘Risk as Feelings’
17. Renate Schubert, Martin Brown, Matthias Gysler and Hans Wolfgang Brachinger (1999), ‘Financial Decision-Making: Are Women Really More Risk-Averse?’
PART III THE INDIVIDUAL INVESTOR
18. Alex Preda (2001), ‘The Rise of the Popular Investor: Financial Knowledge and Investing in England and France, 1840–1880’
19. Werner F.M. De Bondt (1998), ‘A Portrait of the Individual Investor’
20. Mark Grinblatt and Matti Keloharju (2001), ‘What Makes Investors Trade?’
21. Mary M. Bange (2000), ‘Do the Portfolios of Small Investors Reflect Positive Feedback Trading?’
22. Gur Huberman (2001), ‘Familiarity Breeds Investment’
23. Brad M. Barber and Terrance Odean (2001), ‘Boys will be Boys: Gender, Overconfidence, and Common Stock Investment’
24. Shlomo Benartzi and Richard H. Thaler (2001), ‘Naive Diversification Strategies in Defined Contribution Saving Plans’
25. Brigitte C. Madrian and Dennis F. Shea (2001), ‘The Power of Suggestion: Inertia in 401(k) Participation and Savings Behavior’
Name Index
Volume II
Acknowledgements
An introduction by the editor to both volumes appears in Volume I
PART I THE CROSS-SECTION OF EQUITY RETURNS
1. Nicholas Barberis and Ming Huang (2001), ‘Mental Accounting, Loss Aversion, and Individual Stock Returns’
2. Robert A. Haugen and Nardin L. Baker (1996), ‘Commonality in the Determinants of Expected Stock Returns’
3. John M. Griffin and Michael L. Lemmon (2002), ‘Book-to-Market Equity, Distress Risk, and Stock Returns’
4. Karl B. Diether, Christopher J. Malloy and Anna Scherbina (2002), ‘Differences of Opinion and the Cross Section of Stock Returns’
PART II TRENDS AND REVERSALS IN STOCK PRICES
5. Patricia M. Dechow and Richard G. Sloan (1997), ‘Returns to Contrarian Investment Strategies: Tests of Naive Expectations Hypotheses’
6. K. Geert Rouwenhorst (1998), ‘International Momentum Strategies’
7. Narasimhan Jegadeesh and Sheridan Titman (2001), ‘Profitability of Momentum Strategies: An Evaluation of Alternative Explanations’
8. Harrison Hong, Terence Lim and Jeremy C. Stein (2000), ‘Bad News Travels Slowly: Size, Analyst Coverage, and the Profitability of Momentum Strategies’
9. Charles M.C. Lee and Bhaskaran Swaminathan (2000), ‘Price Momentum and Trading Volume’
PART III PRICE AND VALUE
10. Gur Huberman and Tomer Regev (2001), ‘Contagious Speculation and a Cure for Cancer: A Nonevent that Made Stock Prices Soar’
11. Eli Ofek and Matthew Richardson (2003), ‘DotCom Mania: The Rise and Fall of Internet Stock Prices’
12. Paul Schultz and Mir Zaman (2001), ‘Do the Individuals Closest to Internet Firms Believe they are Overvalued?’
13. Eli Bartov, Suresh Radhakrishnan and Itzhak Krinsky (2000), ‘Investor Sophistication and Patterns in Stock Returns after Earnings Announcements’
14. Richard G. Sloan (1996), ‘Do Stock Prices Fully Reflect Information in Accruals and Cash Flows About Future Earnings?’
15. Todd Houge and Tim Loughran (2000), ‘Cash Flow is King? Cognitive Errors by Investors’
PART IV THE EXPERTISE OF FINANCIAL ANALYSTS
16. Bradford Cornell (2001), ‘Is the Response of Analysts to Information Consistent with Fundamental Valuation? The Case of Intel’
17. Werner F.M. De Bondt and Richard H. Thaler (1990), ‘Do Security Analysts Overreact?’
18. Pieter T. Elgers and May H. Lo (1994), ‘Reductions in Analysts’ Annual Earnings Forecast Errors Using Information in Prior Earnings and Security Returns’
19. John C. Easterwood and Stacey R. Nutt (1999), ‘Inefficiency in Analysts’ Earnings Forecasts: Systematic Misreaction or Systematic Optimism?’
PART V CROWD BEHAVIOR
20. Robert J. Shiller (1995), ‘Conversation, Information, and Herd Behavior’
21. Michael J. Cooper, Orlin Dimitrov and P. Raghavendra Rau (2001), ‘A Rose.com by Any Other Name’
22. Erik R. Sirri and Peter Tufano (1998), ‘Costly Search and Mutual Fund Flows’
23. John R. Nofsinger and Richard W. Sias (1999), ‘Herding and Feedback Trading by Institutional and Individual Investors’
24. Werner F.M. De Bondt and William P. Forbes (1999), ‘Herding in Analyst Earnings Forecasts: Evidence from the United Kingdom’
25. Ivo Welch (2000), ‘Herding Among Security Analysts’
Name Index
Volume I
Acknowledgements
Introduction Werner De Bondt
PART I FOUNDATIONS
1. Kent Daniel, David Hirshleifer and Siew Hong Teoh (2002), ‘Investor Psychology in Capital Markets: Evidence and Policy Implications’
2. Daniel Kahneman and Mark W. Riepe (1998), ‘Aspects of Investor Psychology: Beliefs, Preferences, and Biases Investment Advisors Should Know About’
3. Hersh Shefrin and Meir Statman (2000), ‘Behavioral Portfolio Theory’
4. Werner F.M. De Bondt and Richard Thaler (1985), ‘Does the Stock Market Overreact?’
5. Alon Brav and J.B. Heaton (2002), ‘Competing Theories of Financial Anomalies’
6. Werner De Bondt (2002), ‘Discussion of “Competing Theories of Financial Anomalies”’
7. Dilip Abreu and Markus K. Brunnermeier (2002), ‘Synchronization Risk and Delayed Arbitrage’
8. Vernon L. Smith, Gerry L. Suchanek and Arlington W. Williams (1988), ‘Bubbles, Crashes, and Endogenous Expectations in Experimental Spot Asset Markets’
9. Gerd Gigerenzer and Daniel G. Goldstein (1996), ‘Reasoning the Fast and Frugal Way: Models of Bounded Rationality’
PART II ASPECTS OF INVESTOR PSYCHOLOGY
10. Paul B. Andreassen (1987), ‘On the Social Psychology of the Stock Market: Aggregate Attributional Effects and the Regressiveness of Prediction’
11. Nicholas DiFonzo and Prashant Bordia (1997), ‘Rumor and Prediction: Making Sense (but Losing Dollars) in the Stock Market’
12. Don A. Moore, Terri R. Kurtzberg, Craig R. Fox and Max H. Bazerman (1999), ‘Positive Illusions and Forecasting Errors in Mutual Fund Investment Decisions’
13. Robert Bloomfield and Jeffrey Hales (2002), ‘Predicting the Next Step of a Random Walk: Experimental Evidence of Regime-shifting Beliefs’
14. Richard Gonzalez (1994), ‘When Words Speak Louder Than Actions: Another’s Evaluations Can Appear More Diagnostic Than Their Decisions’
15. D. Eric Hirst, Lisa Koonce and Paul J. Simko (1995), ‘Investor Reactions to Financial Analysts’ Research Reports’
16. George F. Loewenstein, Elke U. Weber, Christopher K. Hsee and Ned Welch (2001), ‘Risk as Feelings’
17. Renate Schubert, Martin Brown, Matthias Gysler and Hans Wolfgang Brachinger (1999), ‘Financial Decision-Making: Are Women Really More Risk-Averse?’
PART III THE INDIVIDUAL INVESTOR
18. Alex Preda (2001), ‘The Rise of the Popular Investor: Financial Knowledge and Investing in England and France, 1840–1880’
19. Werner F.M. De Bondt (1998), ‘A Portrait of the Individual Investor’
20. Mark Grinblatt and Matti Keloharju (2001), ‘What Makes Investors Trade?’
21. Mary M. Bange (2000), ‘Do the Portfolios of Small Investors Reflect Positive Feedback Trading?’
22. Gur Huberman (2001), ‘Familiarity Breeds Investment’
23. Brad M. Barber and Terrance Odean (2001), ‘Boys will be Boys: Gender, Overconfidence, and Common Stock Investment’
24. Shlomo Benartzi and Richard H. Thaler (2001), ‘Naive Diversification Strategies in Defined Contribution Saving Plans’
25. Brigitte C. Madrian and Dennis F. Shea (2001), ‘The Power of Suggestion: Inertia in 401(k) Participation and Savings Behavior’
Name Index
Volume II
Acknowledgements
An introduction by the editor to both volumes appears in Volume I
PART I THE CROSS-SECTION OF EQUITY RETURNS
1. Nicholas Barberis and Ming Huang (2001), ‘Mental Accounting, Loss Aversion, and Individual Stock Returns’
2. Robert A. Haugen and Nardin L. Baker (1996), ‘Commonality in the Determinants of Expected Stock Returns’
3. John M. Griffin and Michael L. Lemmon (2002), ‘Book-to-Market Equity, Distress Risk, and Stock Returns’
4. Karl B. Diether, Christopher J. Malloy and Anna Scherbina (2002), ‘Differences of Opinion and the Cross Section of Stock Returns’
PART II TRENDS AND REVERSALS IN STOCK PRICES
5. Patricia M. Dechow and Richard G. Sloan (1997), ‘Returns to Contrarian Investment Strategies: Tests of Naive Expectations Hypotheses’
6. K. Geert Rouwenhorst (1998), ‘International Momentum Strategies’
7. Narasimhan Jegadeesh and Sheridan Titman (2001), ‘Profitability of Momentum Strategies: An Evaluation of Alternative Explanations’
8. Harrison Hong, Terence Lim and Jeremy C. Stein (2000), ‘Bad News Travels Slowly: Size, Analyst Coverage, and the Profitability of Momentum Strategies’
9. Charles M.C. Lee and Bhaskaran Swaminathan (2000), ‘Price Momentum and Trading Volume’
PART III PRICE AND VALUE
10. Gur Huberman and Tomer Regev (2001), ‘Contagious Speculation and a Cure for Cancer: A Nonevent that Made Stock Prices Soar’
11. Eli Ofek and Matthew Richardson (2003), ‘DotCom Mania: The Rise and Fall of Internet Stock Prices’
12. Paul Schultz and Mir Zaman (2001), ‘Do the Individuals Closest to Internet Firms Believe they are Overvalued?’
13. Eli Bartov, Suresh Radhakrishnan and Itzhak Krinsky (2000), ‘Investor Sophistication and Patterns in Stock Returns after Earnings Announcements’
14. Richard G. Sloan (1996), ‘Do Stock Prices Fully Reflect Information in Accruals and Cash Flows About Future Earnings?’
15. Todd Houge and Tim Loughran (2000), ‘Cash Flow is King? Cognitive Errors by Investors’
PART IV THE EXPERTISE OF FINANCIAL ANALYSTS
16. Bradford Cornell (2001), ‘Is the Response of Analysts to Information Consistent with Fundamental Valuation? The Case of Intel’
17. Werner F.M. De Bondt and Richard H. Thaler (1990), ‘Do Security Analysts Overreact?’
18. Pieter T. Elgers and May H. Lo (1994), ‘Reductions in Analysts’ Annual Earnings Forecast Errors Using Information in Prior Earnings and Security Returns’
19. John C. Easterwood and Stacey R. Nutt (1999), ‘Inefficiency in Analysts’ Earnings Forecasts: Systematic Misreaction or Systematic Optimism?’
PART V CROWD BEHAVIOR
20. Robert J. Shiller (1995), ‘Conversation, Information, and Herd Behavior’
21. Michael J. Cooper, Orlin Dimitrov and P. Raghavendra Rau (2001), ‘A Rose.com by Any Other Name’
22. Erik R. Sirri and Peter Tufano (1998), ‘Costly Search and Mutual Fund Flows’
23. John R. Nofsinger and Richard W. Sias (1999), ‘Herding and Feedback Trading by Institutional and Individual Investors’
24. Werner F.M. De Bondt and William P. Forbes (1999), ‘Herding in Analyst Earnings Forecasts: Evidence from the United Kingdom’
25. Ivo Welch (2000), ‘Herding Among Security Analysts’
Name Index
