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Behavioral Finance
Behavioral finance is the study of how psychology affects financial decision making and financial markets. A valuable resource for both academics and practitioners, this authoritative collection brings together the main works in both psychology and finance, dealing with the debate between proponents of the behavioral school and advocates of the efficient market school.
The first volume contains works written by leading psychologists that underlie behavioral finance, focusing on general issues in asset pricing theory, and the studies on over-reaction and under-reaction. The second volume contains key works that develop and extend these themes. Topics include the psychology of prediction, reactions to corporate announcements, the term structure of interest rates, the equity premium, and options prices. The final volume is devoted to the psychology of decisions by individuals, both investors and corporate managers.
The first volume contains works written by leading psychologists that underlie behavioral finance, focusing on general issues in asset pricing theory, and the studies on over-reaction and under-reaction. The second volume contains key works that develop and extend these themes. Topics include the psychology of prediction, reactions to corporate announcements, the term structure of interest rates, the equity premium, and options prices. The final volume is devoted to the psychology of decisions by individuals, both investors and corporate managers.
More Information
Contributors
Contents
More Information
Behavioral finance is the study of how psychology affects financial decision making and financial markets. A valuable resource for both academics and practitioners, this authoritative collection brings together the main works in both psychology and finance, dealing with the debate between proponents of the behavioral school and advocates of the efficient market school.
The first volume contains works written by leading psychologists that underlie behavioral finance, focusing on general issues in asset pricing theory, and the studies on over-reaction and under-reaction. The second volume contains key works that develop and extend these themes. Topics include the psychology of prediction, reactions to corporate announcements, the term structure of interest rates, the equity premium, and options prices. The final volume is devoted to the psychology of decisions by individuals, both investors and corporate managers.
The first volume contains works written by leading psychologists that underlie behavioral finance, focusing on general issues in asset pricing theory, and the studies on over-reaction and under-reaction. The second volume contains key works that develop and extend these themes. Topics include the psychology of prediction, reactions to corporate announcements, the term structure of interest rates, the equity premium, and options prices. The final volume is devoted to the psychology of decisions by individuals, both investors and corporate managers.
Contributors
86 articles, dating from 1952 to 2000
Contributors include: W. De Bondt, D. Kahneman, T. Odean, J. Ritter, R. Shiller, A. Shleifer, M. Statman, R. Thaler, A. Tversky
Contributors include: W. De Bondt, D. Kahneman, T. Odean, J. Ritter, R. Shiller, A. Shleifer, M. Statman, R. Thaler, A. Tversky
Contents
Contents
Volume I
Acknowledgements
Foreword Richard Roll
Introduction Hersh Shefrin
PART I BEHAVIORAL FOUNDATIONS
1. Paul Slovic (1972), ‘Psychological Study of Human Judgment: Implications for Investment Decision Making’
2. Amos Tversky and Daniel Kahneman (1974), ‘Judgment Under Uncertainty: Heuristics and Biases’
3. Amos Tversky and Daniel Kahneman (1982), ‘Evidential Impact of Base Rates’
4. Ward Edwards (1982), ‘Conservatism in Human Information Processing’
5. Dale Griffin and Amos Tversky (1992), ‘The Weighing of Evidence and the Determinants of Confidence’
6. Stuart Oskamp (1982), ‘Overconfidence in Case-study Judgments’
PART II ASSET PRICING THEORY
7. Hersh Shefrin and Meir Statman (1994), ‘Behavioral Capital Asset Pricing Theory’
8. Edward M. Miller (1977), ‘Risk, Uncertainty, and Divergence of Opinion’
9. Lawrence Blume and David Easley (1992), ‘Evolution and Market Behavior’
10. Andrei Shleifer and Robert W. Vishny (1997), ‘The Limits of Arbitrage’
11. Terrance Odean (1998), ‘Volume, Volatility, Price, and Profit When All Traders Are Above Average’
PART III STUDIES ABOUT OVERREACTION AND UNDERREACTION
12. Werner F.M. De Bondt and Richard H. Thaler (1987), ‘Further Evidence on Investor Overreaction and Stock Market Seasonality’
13. Jay R. Ritter (1988), ‘The Buying and Selling Behavior of Individual Investors at the Turn of the Year’
14. Narasimhan Jegadeesh and Sheridan Titman (1993), ‘Returns to Buying Winners and Selling Losers: Implications for Stock Market Efficiency’
15. Josef Lakonishok, Andrei Shleifer and Robert W. Vishny (1994), ‘Contrarian Investment, Extrapolation, and Risk’
16. Nicholas Barberis, Andrei Shleifer and Robert Vishny (1998), ‘A Model of Investor Sentiment’
17. Kent Daniel, David Hirshleifer and Avanidhar Subrahmanyam (1998), ‘Investor Psychology and Security Market Under- and Overreactions’
18. Harrison Hong and Jeremy C. Stein (1999), ‘A Unified Theory of Underreaction, Momentum Trading, and Overreaction in Asset Markets’
PART IV COMPETING VIEWS
19. Eugene F. Fama and Kenneth R. French (1996), ‘Multifactor Explanations of Asset Pricing Anomalies’
20. Michael E. Solt and Meir Statman (1989), ‘Good Companies, Bad Stocks’
21. Hersh Shefrin and Meir Statman (1995), ‘Making Sense of Beta, Size, and Book-to-Market’
22. Kent Daniel and Sheridan Titman (1997), ‘Evidence on the Characteristics of Cross Sectional Variation in Stock Returns’
23. Jennifer Conrad and Gautam Kaul (1993), ‘Long-term Market Overreaction or Biases in Computed Returns?’
24. Ray Ball, S.P. Kothari and Jay Shanken (1995), ‘Problems in Measuring Portfolio Performance: An Application to Contrarian Investment Strategies’
25. Tim Loughran and Jay R. Ritter (1996), ‘Long-term Market Overreaction: The Effect of Low-priced Stocks’
26. Eugene F. Fama (1998), ‘Market Efficiency, Long-term Returns, and Behavioral Finance’
Name Index
Volume II
Acknowledgements
Introduction Hersh Shefrin
PART I PREDICTION
1. Michael E. Solt and Meir Statman (1988), ‘How Useful is the Sentiment Index?’
2. Werner F.M. De Bondt (1993), ‘ Betting on Trends: Intuitive Forecasts of Financial Risk and Return’
3. Paul B. Andreassen (1990), ‘Judgmental Extrapolation and Market Overreaction: On the Use and Disuse of News’
4. Werner F.M. De Bondt (1992), Earnings Forecasts and Share Price Reversals
5. Rafael La Porta (1996), ‘Expectations and the Cross-section of Stock Returns’
6. Benjamin Czaczkes and Yoav Ganzach (1996), ‘The Natural Selection of Prediction Heuristics: Anchoring and Adjustment versus Representativeness’
7. Eli Amir and Yoav Ganzach (1998), ‘Overreaction and Underreaction in Analysts’ Forecasts’
PART II MARKET REACTIONS TO THE PREDICTIONS AND ANNOUNCEMENTS
8. Kent L. Womack (1996), ‘Do Brokerage Analysts'' Recommendations Have Investment Value?’
9. Roni Michaely and Kent L. Womack (1999), ‘Conflict of Interest and the Credibility of Underwriter Analyst Recommendations’
10. Tim Loughran and Jay R. Ritter (1995), ‘The New Issues Puzzle’
11. Tim Loughran and Jay R. Ritter (1997), ‘The Operating Performance of Firms Conducting Seasoned Equity Offerings’
12. David Ikenberry, Josef Lakonishok and Theo Vermaelen (1995), ‘Market Underreaction to Open Market Share Repurchases’
13. David L. Ikenberry, Graeme Rankine and Earl K. Stice (1996), ‘What Do Stock Splits Really Signal?’
14. Roni Michaely, Richard H. Thaler and Kent L. Womack (1995), ‘Price Reactions to Dividend Initiations and Omissions: Overreaction or Drift?’
15. Peter Klibanoff, Owen Lamont and Thierry A. Wizman (1998), ‘Investor Reaction to Salient News in Closed-end Country Funds’
PART III VOLATILITY IN THE TERM STRUCTURE OF INTEREST RATES
16. Robert J. Shiller (1979), ‘The Volatility of Long-term Interest Rates and Expectations Models of the Term Structure’
17. John Y. Campbell and Robert J. Shiller (1991), ‘Yield Spreads and Interest Rate Movements: A Bird’s Eye View’
18. Kenneth A. Froot (1989), ‘New Hope for the Expectations Hypothesis of the Term Structure of Interest Rates’
19. Werner F.M. De Bondt and Mary M. Bange (1992), ‘Inflation Forecast Errors and Time Variation in Term Premia’
PART IV VOLATILITY IN EQUITY MARKETS
20. John Y. Campbell and Robert J. Shiller (1998), ‘Valuation Ratios and the Long-run Stock Market Outlook’
21. Franco Modigliani and Richard A. Cohn (1979), ‘Inflation, Rational Valuation and the Market’
22. Charles M.C. Lee, James Myers and Bhaskaran Swaminathan (1999), ‘What is the Intrinsic Value of the Dow?’
23. Vernon L. Smith, Gerry L. Suchanek and Arlington W. Williams (1988), ‘Bubbles, Crashes, and Endogenous Expectations in Experimental Spot Asset Markets’
PART V OPTIONS AND ARBITRAGE
24. John E. Gilster, Jr. (1997), ‘Option Pricing Theory: Is "Risk-free" Hedging Feasible?’
25. Robert Jarrow (1997), ‘Review of John E. Gilster, Jr. – "Option Pricing Theory: Is ‘Risk-free’ Hedging Feasible?"’
26. Gary L. Gastineau (1997), ‘Comment on John E. Gilster, Jr. "Option Pricing Theory: Is ‘Risk-free’ Hedging Feasible?"’
27. Hersh Shefrin (1999), ‘Irrational Exuberance and Option Smiles’
28. Kenneth A. Froot and Emil M. Dabora (1999), ‘How are Stock Prices Affected by the Location of Trade?’
Name Index
Volume III
Acknowledgements
Introduction Hersh Shefrin
PART I FOUNDATION WORKS
1. Harry Markowitz (1952), ‘The Utility of Wealth’
2. A.D. Roy (1952), ‘Safety First and the Holding of Assets’
3. Daniel Kahneman and Amos Tversky (1979), ‘Prospect Theory: An Analysis of Decision Under Risk’
4. Amos Tversky and Daniel Kahneman (1986), ‘Rational Choice and the Framing of Decisions’
5. Lola L. Lopes (1987), ‘Between Hope and Fear: The Psychology of Risk’
PART II THE STRUCTURE OF INDIVIDUAL INVESTORS’ PORTFOLIOS
6. Hersh Shefrin and Meir Statman (2000), ‘Behavioral Portfolio Theory’
7. Richard H. Thaler (1999), ‘Mental Accounting Matters’
8. John J. McConnell and Eduardo S. Schwartz (1992), ‘The Origin of LYONs: A Case Study in Financial Innovation’
9. Hersh Shefrin and Meir Statman (1993), ‘Behavioral Aspects of the Design and Marketing of Financial Products’
10. Brad M. Barber and Terrance Odean (2000), ‘Trading is Hazardous to Your Wealth: The Common Stock Investment Performance of Individual Investors’
11. Werner F.M. De Bondt (1998), ‘A Portrait of the Individual Investor’
12. Jay R. Ritter (1996), ‘How I Helped to Make Fischer Black Wealthier’
PART III THE DISPOSITION EFFECT
13. Terrance Odean (1998), ‘Are Investors Reluctant to Realize Their Losses?’
14. Terrance Odean (1999), ‘Do Investors Trade Too Much?’
15. Jeffrey Heisler (1994), ‘Loss Aversion in a Futures Market: An Empirical Test’
16. Martin Weber and Colin F. Camerer (1998), ‘The Disposition Effect in Securities Trading: An Experimental Analysis’
17. Chip Heath, Steven Huddart and Mark Lang (1999), ‘Psychological Factors and Stock Option Exercises’
PART IV INTERTEMPORAL ISSUES
18. Michael S. Rozeff (1994), ‘Lump-sum Investing versus Dollar-averaging’
19. Meir Statman (1995), ‘A Behavioral Framework for Dollar-cost Averaging’
20. Laurence Levin (1998), ‘Are Assets Fungible? Testing the Behavioral Theory of Life-cycle Savings’
21. Shlomo Benartzi and Richard H. Thaler (1995), ‘Myopic Loss Aversion and the Equity Premium Puzzle’
22. Lola L. Lopes (1996), ‘When Time Is of the Essence: Averaging, Aspiration, and the Short Run’
23. Stephen A. Ross (1999), ‘Adding Risks: Samuelson’s Fallacy of Large Numbers Revisited’
24. Kenneth L. Fisher and Meir Statman (1999), ‘A Behavioral Framework for Time Diversification’
25. Eldar Shafir, Peter Diamond and Amos Tversky (1997), ‘Money Illusion’
26. Jeffrey Pontiff (1997), ‘Excess Volatility and Closed-end Funds’
PART V MANAGERIAL DECISION-MAKING
27. John Lintner (1956), ‘Distribution of Incomes of Corporations among Dividends, Retained Earnings, and Taxes’
28. Merton H. Miller (1986), ‘Behavioral Rationality in Finance: The Case of Dividends’
29. Shlomo Benartzi, Roni Michaely and Richard Thaler (1997), ‘ Do Changes in Dividends Signal the Future or the Past?’
30. François Degeorge, Jayendu Patel and Richard Zeckhauser (1999), ‘Earnings Management to Exceed Thresholds’
31. Meir Statman and James F. Sepe (1989), ‘Project Termination Announcements and the Market Value of the Firm’
32. Jeremy C. Stein (1996), ‘Rational Capital Budgeting in an Irrational World’
Name Index
Volume I
Acknowledgements
Foreword Richard Roll
Introduction Hersh Shefrin
PART I BEHAVIORAL FOUNDATIONS
1. Paul Slovic (1972), ‘Psychological Study of Human Judgment: Implications for Investment Decision Making’
2. Amos Tversky and Daniel Kahneman (1974), ‘Judgment Under Uncertainty: Heuristics and Biases’
3. Amos Tversky and Daniel Kahneman (1982), ‘Evidential Impact of Base Rates’
4. Ward Edwards (1982), ‘Conservatism in Human Information Processing’
5. Dale Griffin and Amos Tversky (1992), ‘The Weighing of Evidence and the Determinants of Confidence’
6. Stuart Oskamp (1982), ‘Overconfidence in Case-study Judgments’
PART II ASSET PRICING THEORY
7. Hersh Shefrin and Meir Statman (1994), ‘Behavioral Capital Asset Pricing Theory’
8. Edward M. Miller (1977), ‘Risk, Uncertainty, and Divergence of Opinion’
9. Lawrence Blume and David Easley (1992), ‘Evolution and Market Behavior’
10. Andrei Shleifer and Robert W. Vishny (1997), ‘The Limits of Arbitrage’
11. Terrance Odean (1998), ‘Volume, Volatility, Price, and Profit When All Traders Are Above Average’
PART III STUDIES ABOUT OVERREACTION AND UNDERREACTION
12. Werner F.M. De Bondt and Richard H. Thaler (1987), ‘Further Evidence on Investor Overreaction and Stock Market Seasonality’
13. Jay R. Ritter (1988), ‘The Buying and Selling Behavior of Individual Investors at the Turn of the Year’
14. Narasimhan Jegadeesh and Sheridan Titman (1993), ‘Returns to Buying Winners and Selling Losers: Implications for Stock Market Efficiency’
15. Josef Lakonishok, Andrei Shleifer and Robert W. Vishny (1994), ‘Contrarian Investment, Extrapolation, and Risk’
16. Nicholas Barberis, Andrei Shleifer and Robert Vishny (1998), ‘A Model of Investor Sentiment’
17. Kent Daniel, David Hirshleifer and Avanidhar Subrahmanyam (1998), ‘Investor Psychology and Security Market Under- and Overreactions’
18. Harrison Hong and Jeremy C. Stein (1999), ‘A Unified Theory of Underreaction, Momentum Trading, and Overreaction in Asset Markets’
PART IV COMPETING VIEWS
19. Eugene F. Fama and Kenneth R. French (1996), ‘Multifactor Explanations of Asset Pricing Anomalies’
20. Michael E. Solt and Meir Statman (1989), ‘Good Companies, Bad Stocks’
21. Hersh Shefrin and Meir Statman (1995), ‘Making Sense of Beta, Size, and Book-to-Market’
22. Kent Daniel and Sheridan Titman (1997), ‘Evidence on the Characteristics of Cross Sectional Variation in Stock Returns’
23. Jennifer Conrad and Gautam Kaul (1993), ‘Long-term Market Overreaction or Biases in Computed Returns?’
24. Ray Ball, S.P. Kothari and Jay Shanken (1995), ‘Problems in Measuring Portfolio Performance: An Application to Contrarian Investment Strategies’
25. Tim Loughran and Jay R. Ritter (1996), ‘Long-term Market Overreaction: The Effect of Low-priced Stocks’
26. Eugene F. Fama (1998), ‘Market Efficiency, Long-term Returns, and Behavioral Finance’
Name Index
Volume II
Acknowledgements
Introduction Hersh Shefrin
PART I PREDICTION
1. Michael E. Solt and Meir Statman (1988), ‘How Useful is the Sentiment Index?’
2. Werner F.M. De Bondt (1993), ‘ Betting on Trends: Intuitive Forecasts of Financial Risk and Return’
3. Paul B. Andreassen (1990), ‘Judgmental Extrapolation and Market Overreaction: On the Use and Disuse of News’
4. Werner F.M. De Bondt (1992), Earnings Forecasts and Share Price Reversals
5. Rafael La Porta (1996), ‘Expectations and the Cross-section of Stock Returns’
6. Benjamin Czaczkes and Yoav Ganzach (1996), ‘The Natural Selection of Prediction Heuristics: Anchoring and Adjustment versus Representativeness’
7. Eli Amir and Yoav Ganzach (1998), ‘Overreaction and Underreaction in Analysts’ Forecasts’
PART II MARKET REACTIONS TO THE PREDICTIONS AND ANNOUNCEMENTS
8. Kent L. Womack (1996), ‘Do Brokerage Analysts'' Recommendations Have Investment Value?’
9. Roni Michaely and Kent L. Womack (1999), ‘Conflict of Interest and the Credibility of Underwriter Analyst Recommendations’
10. Tim Loughran and Jay R. Ritter (1995), ‘The New Issues Puzzle’
11. Tim Loughran and Jay R. Ritter (1997), ‘The Operating Performance of Firms Conducting Seasoned Equity Offerings’
12. David Ikenberry, Josef Lakonishok and Theo Vermaelen (1995), ‘Market Underreaction to Open Market Share Repurchases’
13. David L. Ikenberry, Graeme Rankine and Earl K. Stice (1996), ‘What Do Stock Splits Really Signal?’
14. Roni Michaely, Richard H. Thaler and Kent L. Womack (1995), ‘Price Reactions to Dividend Initiations and Omissions: Overreaction or Drift?’
15. Peter Klibanoff, Owen Lamont and Thierry A. Wizman (1998), ‘Investor Reaction to Salient News in Closed-end Country Funds’
PART III VOLATILITY IN THE TERM STRUCTURE OF INTEREST RATES
16. Robert J. Shiller (1979), ‘The Volatility of Long-term Interest Rates and Expectations Models of the Term Structure’
17. John Y. Campbell and Robert J. Shiller (1991), ‘Yield Spreads and Interest Rate Movements: A Bird’s Eye View’
18. Kenneth A. Froot (1989), ‘New Hope for the Expectations Hypothesis of the Term Structure of Interest Rates’
19. Werner F.M. De Bondt and Mary M. Bange (1992), ‘Inflation Forecast Errors and Time Variation in Term Premia’
PART IV VOLATILITY IN EQUITY MARKETS
20. John Y. Campbell and Robert J. Shiller (1998), ‘Valuation Ratios and the Long-run Stock Market Outlook’
21. Franco Modigliani and Richard A. Cohn (1979), ‘Inflation, Rational Valuation and the Market’
22. Charles M.C. Lee, James Myers and Bhaskaran Swaminathan (1999), ‘What is the Intrinsic Value of the Dow?’
23. Vernon L. Smith, Gerry L. Suchanek and Arlington W. Williams (1988), ‘Bubbles, Crashes, and Endogenous Expectations in Experimental Spot Asset Markets’
PART V OPTIONS AND ARBITRAGE
24. John E. Gilster, Jr. (1997), ‘Option Pricing Theory: Is "Risk-free" Hedging Feasible?’
25. Robert Jarrow (1997), ‘Review of John E. Gilster, Jr. – "Option Pricing Theory: Is ‘Risk-free’ Hedging Feasible?"’
26. Gary L. Gastineau (1997), ‘Comment on John E. Gilster, Jr. "Option Pricing Theory: Is ‘Risk-free’ Hedging Feasible?"’
27. Hersh Shefrin (1999), ‘Irrational Exuberance and Option Smiles’
28. Kenneth A. Froot and Emil M. Dabora (1999), ‘How are Stock Prices Affected by the Location of Trade?’
Name Index
Volume III
Acknowledgements
Introduction Hersh Shefrin
PART I FOUNDATION WORKS
1. Harry Markowitz (1952), ‘The Utility of Wealth’
2. A.D. Roy (1952), ‘Safety First and the Holding of Assets’
3. Daniel Kahneman and Amos Tversky (1979), ‘Prospect Theory: An Analysis of Decision Under Risk’
4. Amos Tversky and Daniel Kahneman (1986), ‘Rational Choice and the Framing of Decisions’
5. Lola L. Lopes (1987), ‘Between Hope and Fear: The Psychology of Risk’
PART II THE STRUCTURE OF INDIVIDUAL INVESTORS’ PORTFOLIOS
6. Hersh Shefrin and Meir Statman (2000), ‘Behavioral Portfolio Theory’
7. Richard H. Thaler (1999), ‘Mental Accounting Matters’
8. John J. McConnell and Eduardo S. Schwartz (1992), ‘The Origin of LYONs: A Case Study in Financial Innovation’
9. Hersh Shefrin and Meir Statman (1993), ‘Behavioral Aspects of the Design and Marketing of Financial Products’
10. Brad M. Barber and Terrance Odean (2000), ‘Trading is Hazardous to Your Wealth: The Common Stock Investment Performance of Individual Investors’
11. Werner F.M. De Bondt (1998), ‘A Portrait of the Individual Investor’
12. Jay R. Ritter (1996), ‘How I Helped to Make Fischer Black Wealthier’
PART III THE DISPOSITION EFFECT
13. Terrance Odean (1998), ‘Are Investors Reluctant to Realize Their Losses?’
14. Terrance Odean (1999), ‘Do Investors Trade Too Much?’
15. Jeffrey Heisler (1994), ‘Loss Aversion in a Futures Market: An Empirical Test’
16. Martin Weber and Colin F. Camerer (1998), ‘The Disposition Effect in Securities Trading: An Experimental Analysis’
17. Chip Heath, Steven Huddart and Mark Lang (1999), ‘Psychological Factors and Stock Option Exercises’
PART IV INTERTEMPORAL ISSUES
18. Michael S. Rozeff (1994), ‘Lump-sum Investing versus Dollar-averaging’
19. Meir Statman (1995), ‘A Behavioral Framework for Dollar-cost Averaging’
20. Laurence Levin (1998), ‘Are Assets Fungible? Testing the Behavioral Theory of Life-cycle Savings’
21. Shlomo Benartzi and Richard H. Thaler (1995), ‘Myopic Loss Aversion and the Equity Premium Puzzle’
22. Lola L. Lopes (1996), ‘When Time Is of the Essence: Averaging, Aspiration, and the Short Run’
23. Stephen A. Ross (1999), ‘Adding Risks: Samuelson’s Fallacy of Large Numbers Revisited’
24. Kenneth L. Fisher and Meir Statman (1999), ‘A Behavioral Framework for Time Diversification’
25. Eldar Shafir, Peter Diamond and Amos Tversky (1997), ‘Money Illusion’
26. Jeffrey Pontiff (1997), ‘Excess Volatility and Closed-end Funds’
PART V MANAGERIAL DECISION-MAKING
27. John Lintner (1956), ‘Distribution of Incomes of Corporations among Dividends, Retained Earnings, and Taxes’
28. Merton H. Miller (1986), ‘Behavioral Rationality in Finance: The Case of Dividends’
29. Shlomo Benartzi, Roni Michaely and Richard Thaler (1997), ‘ Do Changes in Dividends Signal the Future or the Past?’
30. François Degeorge, Jayendu Patel and Richard Zeckhauser (1999), ‘Earnings Management to Exceed Thresholds’
31. Meir Statman and James F. Sepe (1989), ‘Project Termination Announcements and the Market Value of the Firm’
32. Jeremy C. Stein (1996), ‘Rational Capital Budgeting in an Irrational World’
Name Index
