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Overconfidence Among Professional Investors
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Book Synopsis Overconfidence Among Professional Investors by :
Download or read book Overconfidence Among Professional Investors written by and published by . This book was released on 2008 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: We examine overconfidence among equity mutual fund managers. While overconfidence has been extensively documented among retail investors, evidence from professional investors is scarce. Consistent with theories of overconfidence, we find that fund managers trade more after good past performance. The higher trading activity after good performance is driven by individual portfolio performance, while the market performance has no significant impact. We find no spillover effects from one good performing fund on the turnover ratios of the other funds the same manager manages, suggesting that managerial overconfidence is task-specific. Our results are not consistent with an increase in trading activity by fund managers when rational Bayesian learning has informed them about their abilities. -- Professional Investors ; Overconfidence ; Behavioral Biases ; Mutual Funds
Book Synopsis Professional Investors, Psychology and Performance by : Arman Eshraghi
Download or read book Professional Investors, Psychology and Performance written by Arman Eshraghi and published by LAP Lambert Academic Publishing. This book was released on 2012 with total page 204 pages. Available in PDF, EPUB and Kindle. Book excerpt: Studies of investor psychology are increasingly gaining significance in the finance and investment literature. This research aims to investigate, on the one hand, to what extent fund managers are prone to overconfidence and associated behavioral biases such as self-serving attribution. On the other hand, the research explores the extent to which overconfidence, and specifically overoptimism, may have an impact on a mutual fund's investment performance. The fundamental question is why, how, and through which mechanisms may overconfidence affect investment decisions. The research findings presented in this book suggest that excessive overconfidence is associated, on average, with diminished future investment returns. More precisely, the actual relation between fund manager overconfidence and subsequent investment performance is non-linear and in the form of an inverted-U. This finding, among other results discussed, can have important implications for the fund management industry. This book is, therefore, of interest to both finance academics and practitioners as well as general readers interested in the psychology of investments.
Book Synopsis Managerial Overconfidence: Different Thinking through Different Education by : Maximilian Margolin
Download or read book Managerial Overconfidence: Different Thinking through Different Education written by Maximilian Margolin and published by Anchor Academic Publishing (aap_verlag). This book was released on 2014-02-01 with total page 82 pages. Available in PDF, EPUB and Kindle. Book excerpt: In literature, overconfidence has been blamed for economic bubbles and crises as well as for international conflicts and wars. While education has already been shown to impact one’s level of overconfidence previous research focused on the length and profoundness of education. This study, in contrast, examines the connection between overconfidence and the field in which a person has been educated. The issues covered are therefore how education and mind set are related, why a differentiation between “quantitative” and “qualitative” education makes sense in this context, and how different mind-sets influence an individual’s proneness to overconfidence. Drawing on the dual process concept of reasoning from psychology it is argued that the focus of one’s education may have an influence on individual levels of overconfidence through distinct ways of reasoning that are acquired and practiced during higher education. As support for this theory, data on the overconfidence of CEOs of the largest German companies is used and experiments for future research on this topic are suggested.
Book Synopsis Confidence and the Welfare of Less-Informed Investors by : Robert J. Bloomfield
Download or read book Confidence and the Welfare of Less-Informed Investors written by Robert J. Bloomfield and published by . This book was released on 1998 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt: In response to recommendations by the AICPA Special Committee on Financial Reporting and the Association for Investment Management and Research, the FASB has recently invited comment regarding the question ?Given [efficient] markets, would any disservice be done to the interests of individual investors by allowing professional investors access to more extensive information?? (AICPA, 1996, p 22). Research in psychology (e.g., Griffin & Tversky, 1992) suggests that less-informed investors may suffer from overconfidence and trade too aggressively given their information. This paper reports two experiments designed to address these issues. In both experiments, security values are determined by the price/book ratios of actual firms, ?more-informed? investors observe three value-relevant financial ratios derived from Value-Line reports, and ?less-informed? investors observe only one of those signals. Experiment 1 provides evidence from a pencil-and-paper task that less-informed investors are overconfident relative to their more-informed counterparts, and that this relative overconfidence is reduced by alerting investors to the extent of their informational disadvantage. Trading behavior follows the same pattern as confidence assessments. Experiment 2 provides evidence from laboratory markets that, even after market prices have stabilized after many rounds of trading, less-informed investors systematically transfer wealth to more-informed investors as a result of biased prices and overly aggressive trading, but that alerting less-informed investors to the extent of their informational disadvantage eliminates these welfare losses. The results of both experiments thus suggest that providing information to only professional investors could harm the welfare of less-informed investors if less-informed investors are not aware of the extent of their informational disadvantage.
Book Synopsis Financial Behavior by : H. Kent Baker
Download or read book Financial Behavior written by H. Kent Baker and published by Oxford University Press. This book was released on 2017-05-02 with total page 681 pages. Available in PDF, EPUB and Kindle. Book excerpt: Financial Behavior: Players, Services, Products, and Markets provides a synthesis of the theoretical and empirical literature on the financial behavior of major stakeholders, financial services, investment products, and financial markets. The book offers a different way of looking at financial and emotional well-being and processing beliefs, emotions, and behaviors related to money. The book provides important insights about cognitive and emotional biases that influence various financial decision-makers, services, products, and markets. With diverse concepts and topics, the book brings together noted scholars and practitioners so readers can gain an in-depth understanding about this topic from experts from around the world. In today's financial setting, the discipline of behavioral finance is an ever-changing area that continues to evolve at a rapid pace. This book takes readers through the core topics and issues as well as the latest trends, cutting-edge research developments, and real-world situations. Additionally, discussion of research on various cognitive and emotional issues is covered throughout the book. Thus, this volume covers a breadth of content from theoretical to practical, while attempting to offer a useful balance of detailed and user-friendly coverage. Those interested in a broad survey will benefit as will those searching for more in-depth presentations of specific areas within this field of study. As the seventh book in the Financial Markets and Investment Series, Financial Behavior: Players, Services, Products, and Markets offers a fresh looks at the fascinating area of financial behavior.
Book Synopsis Investors' Trading Activity by : Dimitrios Kourditis
Download or read book Investors' Trading Activity written by Dimitrios Kourditis and published by . This book was released on 2012 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: Research studies (such as Kiyilar and Acar, 2009) have supported that investors act in irrational ways in some of their investment decisions, and financial models have failed to explain the real investors' behaviour. Investors' trading activity is influenced by personality traits and psychological biases (overconfidence, risk tolerance, self-monitoring, and social influence) and is also affected by mood. The aim of the thesis is to confirm these assumptions by developing and testing a model (using SEM analysis) which would incorporate and examine all of them simultaneously, as it actually happens in real life. The research population includes 345 Greek investors, including individuals' as w~rt' 'as professional' investors who work in various investment companies located all over the country. The data collection included two surveys. The first survey investigated psychological biases and personality traits to find if they correlate with stock trading performance, whereas the second survey examined the psychological predisposition to find whether mood affects stock trading performance. The results have verified that these psychological biases, personality traits and mood, influence investors' trading performance, frequency and volume, providing a complete research model. Another objective of this study was to understand the profile of Greek investors and test if there are differences among them as far as stock trading behaviour (performance, volume and frequency) is concerned. Cluster analysis (three-cluster solution) identified three investors' profiles, the low, moderate and high investor profile, and revealed that high profile investors (with the higher scores on the psychological biases and personality traits) trade high volumes of stocks, make transactions more frequently and earn higher stock profits compared to investors belonging to the other two profiles. A comparative analysis between professionals and individuals has shown that professional investors have higher performance than individuals as far as stock trading is concerned. The results have also shown that professional investors score high on the psychological biases and personality traits examined. The second stage of the study has required iterative data using questions that depict psychological predisposition in a dynamic way. The cluster analysis of 1 Non-professionals 2 Portfolio analysts and stockbrokers 1 the second data set has identified and compared different mood status highlighting differences among groups as far as their mood status and their stock trading performance is concerned. This study has provided evidence supporting the significance of some subjective factors, such as personality traits, psychological biases and emotions in investors' trading activity. The findings have shown that investors who have specific characteristics such as overconfidence, high self-monitoring, risk intolerance, positive mood and sociability are probably better on stock trading performance. ~'A This thesis could enable individual investors and inv;stment advisors, to construct a framework of the profile that contributes to high stock trading performance (a stock trading performance guide). Therefore, investors could possibly ensure the stock trading performance, to the extent that this depends on their profile. Moreover, the study contributes to the field providing a complete and verified research model concerning investors' trading behaviour. Additionally, a contribution of this study is the extensive literature review in the field of behavioural finance which provides a better understanding of behavioural factors and a framework for academics, researchers, individual and professional investors. Keywords: Behavioural Finance; Trading Behaviour; Trading Activity; Model Analysis. JEL Classification: C30, D14, Gll, 016.
Book Synopsis Prevailing Behavioral Biases and Investor Profiles by : Manuel Gonzalez-Igual
Download or read book Prevailing Behavioral Biases and Investor Profiles written by Manuel Gonzalez-Igual and published by . This book was released on 2017 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper analyzes the relevance of Behavioral Finance in the functioning of financial markets. As a result of the empirical evidence through four surveys to professional investors with an average of 92 respondents, our main focus is to enhance the structure and systematization in the field. We first study the awareness and level of education in Behavioral Finance, determining a clear gap of learning experience for professional investors. We also analyze the main cognitive and emotional biases; identifying representativeness, loss aversion and herding as the most relevant ones in the decision making process. Moreover, we evaluate the prevalence of under- and over-reaction through several financial scenarios and the lack of ability to anticipate the market. Finally, we classify professional investors through their investment profile applying the BB&K Five-Way Model. We identify overconfidence as being a predominant bias affecting investors and also find a clear disconnection between investors and their clients.
Book Synopsis Overcoming Cognitive Biases in Strategic Management and Decision Making by : Siniksaran, Enis
Download or read book Overcoming Cognitive Biases in Strategic Management and Decision Making written by Siniksaran, Enis and published by IGI Global. This book was released on 2024-02-12 with total page 309 pages. Available in PDF, EPUB and Kindle. Book excerpt: The persistent presence of cognitive biases has influenced rational decisions and strategic management since the 1970s. These prejudiced errors in judgment, often systematic and predictable, breach the foundational assumptions of economic theory, leading to dire consequences such as social inequality, financial collapse, and governmental inefficiency. Even the brightest minds are not immune, making it crucial to address these biases head-on. Overcoming Cognitive Biases in Strategic Management and Decision Making unravels the complex tapestry of biases that infiltrate decision-making processes at all levels. From social injustice biases and reasoning errors to action-inaction and social biases, the book confronts the myriad of ways that biases manifest in critical moments. These pose a significant threat to sound decision-making in various fields, impacting professionals ranging from judges and doctors to public officials. The repercussions of unchecked biases are far-reaching, leading to flawed outcomes that echo through society. The urgent need for a strategic response to mitigate these biases and enhance decision-making processes forms the crux of the problem this book seeks to address.
Book Synopsis Overconfidence and Information by : Jaeho Cho
Download or read book Overconfidence and Information written by Jaeho Cho and published by . This book was released on 2006 with total page 33 pages. Available in PDF, EPUB and Kindle. Book excerpt: We study a financial market that consists of two types of investors, individual and institutional, whose overconfidence level and information-gathering ability are different. It is assumed that all investors are overconfident on their own private information and underestimate the other investor's private information, but the institutional investor is less serious on these kinds of psychological biases. Also we assume that the institutional investor is able to uncover a piece of relevant information earlier than the individual investor. Since institutions are under the control of more experienced managers and have a better information searching and analyzing system than the individual investor, the above assumptions seem to be not so restrictive. With these assumptions, this paper shows price continuation in the short run and price reversal in the long run under certain conditions. The Individual investor's underestimation of the institutional investor's information is the driving force for the momentum in the short run. Though the mean-reversion in the long run is caused by overconfidence of both investors, the influence of more overconfident individual investors is greater. Thus both the price continuation and price reversals are more conspicuous in stocks with a higher proportion of individual investors. These propositions can be easily tested with ownership data of firms. It also explains the well-known empirical results that there is a positive correlation between institutional investor's trades and subsequent price changes and a negative correlation between individual investor's trade and subsequent price changes. As the market wide overconfidence of investors increases, the price reversal becomes more severe. Also in the stocks where investors are easily subject to the behavioral biases, for example the stocks whose future cash flows are very ambiguous, we can find a prominent price reversal.
Book Synopsis Think, Act, and Invest Like Warren Buffett (PB) by : Larry Swedroe
Download or read book Think, Act, and Invest Like Warren Buffett (PB) written by Larry Swedroe and published by McGraw Hill Professional. This book was released on 2014-03-07 with total page 160 pages. Available in PDF, EPUB and Kindle. Book excerpt: Bedrock investing principles for profiting in today’s shaky markets If you wanted to create the next earth-shattering consumer product, Steve Jobs would be an ideal role model to follow. If you planned to become a great golfer, you might look to Arnold Palmer or Jack Nicklaus. So, if your goals were to outperform other investors and achieve your life’s financial goals, what should you do? Think, act and invest like the best investor out there: Warren Buffett. While you can’t invest exactly like he does, Think, Act, and Invest Like Warren Buffett provides a solid, sensible investing approach based on Buffett’s advice regarding investment strategies. When it comes to investing, Director of Research for the BAM Alliance and CBS News blogger Larry Swedroe has pretty much seen it all—and he’s come to the conclusion that simple is better, that adopting basic investing principles always increases an investor’s chance of success and that Buffett is the perfect model for such investing. In Think, Act, and Invest Like Warren Buffett, Swedroe provides the foundational knowledge you need to: Develop a financial plan to help you make rational decisions on a consistent basis Determine the level of risk that’s right for you and allocate your assets accordingly Create a strong portfolio that will weather any economic storm Manage your portfolio—rebalance periodically to maintain proper risk levels The beauty of the Buffett approach is its profound simplicity: follow the basics, keep your cool, and have a sense of humor. The market volatility of recent years has ushered in armies of economists, forecasters and other so-called experts whose job it is to explain how everything works. Somehow, they have managed to muddy the waters even more. The truth is, investing is easier than you think—even in today’s economy. “Complex problems can have simple solutions,” Swedroe writes. Think, Act, and Invest Like Warren Buffett helps you go back to the basics—so you can leap in front of the investing pack. Praise for Think, Act, and Invest Like Warren Buffett: “You could not spend a more profitable hour than reading Larry Swedroe’s wise and lucid investment guide.” —Burton Malkiel, author, A Random Walk Down Wall Street “If you've been wondering why you've had such a hard time investing well, Playing the Winner's Game will diagnose your ills and treat them in just ninety short, delightful pages.” —William Bernstein, author, A Splendid Exchange and The Investor’s Manifesto “Follow the investment strategy advocated by Larry Swedroe, and free yourself to spend your time on life's treasures—like your family and friends!” —William Reichenstein, professor, Baylor University “As someone who teaches a college investments course, I would not have thought it possible to do what Swedroe has done in such a short concise book.” —Edward R. Wolfe, professor of finance, Western Kentucky University “It's amazing. Larry Swedroe managed to pen a magnificent book not only chock full of actionable advice, but one that's fun to read. Get a copy and treat yourself to a better financial future.” —Harold Evensky, president, Evensky & Katz “Larry Swedroe is the undisputed expert in helping investors manage portfolios the smart way. His new book, Playing the Winner’s Game, combines all facets of wealth management in an inspiring and powerful manner.” —Bill Schultheis, author, The New Coffeehouse Investor
Book Synopsis A Measure of Overconfidence by : Malte Schulz
Download or read book A Measure of Overconfidence written by Malte Schulz and published by . This book was released on 2012 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: Overconfidence is usually measured for specific occupational groups such as students or professional investors. Hence, it is unclear in how far the bias affects the decision-making of the general population. Consequently, this study aims at achieving a measure that is more representative for the whole population. Overconfidence is measured based on a sample of 123 subjects not selected for affiliation to certain professional groups. Three different measurement methods are applied in order to determine if they yield similar results and conclusions. The majority of subjects is overconfident, which shows that the bias is not only a phenomenon of certain groups of people but that it might impact the decisions of the general population as well. Gender differences are mostly insignificant. The level of overconfidence varies depending on the measurement method and correlations between their results are low. Consequently, it is concluded that different measures are needed to get a concise impression of a person’'s level of overconfidence. From a financial point of view, it is argued that overconfidence measures should be included in financial advisory processes to make people aware of the potentially adverse impact overconfidence might have. Only if people know about the bias, they are able to adjust their behavior accordingly in order to make better decisions.
Book Synopsis The Oxford Handbook of Behavioral Economics and the Law by : Eyal Zamir
Download or read book The Oxford Handbook of Behavioral Economics and the Law written by Eyal Zamir and published by Oxford Handbooks. This book was released on 2014 with total page 841 pages. Available in PDF, EPUB and Kindle. Book excerpt: 'The Oxford Handbook of Behavioral Economics and Law' brings together leading scholars of law, psychology, and economics to provide an up-to-date and comprehensive analysis of this field of research, including its strengths and limitations as well as a forecast of its future development. Its twenty-nine chapters are organized into four parts.
Book Synopsis Investors' Overconfidence in Primary Markets by : Yenshan Hsu
Download or read book Investors' Overconfidence in Primary Markets written by Yenshan Hsu and published by . This book was released on 2007 with total page 30 pages. Available in PDF, EPUB and Kindle. Book excerpt: We test whether investors in primary markets also exhibit overconfidence. Using data from 77 Taiwanese discriminatory IPO auctions, we test the overconfidence hypothesis for three types of investors (i.e. bidders in auctions): male individuals, female individuals, and institutional investors. We find that the male, the female, and institutional investors in our sample do indeed exhibit overconfidence in bidding for IPO shares; the male have a higher degree of overconfidence than do the female and the institutional investors. We further test whether the overconfidence found stems from self-attribution bias, which in our study might suggest that investors who gain from previous IPOs will bid subsequent IPOs with a more aggressive price, while investors who lose in previous IPOs do not recede in their bidding price for subsequent IPOs. Our results document such evidence for individual investors.
Book Synopsis Behavioral Finance by : H. Kent Baker
Download or read book Behavioral Finance written by H. Kent Baker and published by Oxford University Press. This book was released on 2019-02-01 with total page 256 pages. Available in PDF, EPUB and Kindle. Book excerpt: People tend to be penny wise and pound foolish and cry over spilt milk, even though we are taught to do neither. Focusing on the present at the expense of the future and basing decisions on lost value are two mistakes common to decision-making that are particularly costly in the world of finance. Behavioral Finance: What Everyone Needs to KnowR provides an overview of common shortcuts and mistakes people make in managing their finances. It covers the common cognitive biases or errors that occur when people are collecting, processing, and interpreting information. These include emotional biases and the influence of social factors, from culture to the behavior of one's peers. These effects vary during one's life, reflecting differences in due to age, experience, and gender. Among the questions to be addressed are: How did the financial crisis of 2007-2008 spur understanding human behavior? What are market anomalies and how do they relate to behavioral biases? What role does overconfidence play in financial decision- making? And how does getting older affect risk tolerance?
Book Synopsis Overconfidence by : Dominik Manuel Piehlmaier
Download or read book Overconfidence written by Dominik Manuel Piehlmaier and published by . This book was released on 2018 with total page 279 pages. Available in PDF, EPUB and Kindle. Book excerpt: This cumulative dissertation consists of three studies that examine the presence and impact of overconfidence on young children, college students, and investors. First, the manuscript sheds light on the impact of shared decision-making on overconfidence. It is the first study to combine secondary and primary data to show that experimental participants who make their decisions in tandem with others are less affected by the cognitive bias than those who decide on their own. Secondary data suggest that consulting friends and family is associated with a more pronounced reduction in excessive confidence than solely relying on professional financial advice. Second, the dissertation revisits the issue of gender on investor overconfidence. A person's gender has previously been associated with the presence or absence of excessive confidence in finance. The results from multiple independent datasets provide evidence that male investors are not per se more overconfident than women. Among lone decision-makers, female financial actors exhibit more excessive confidence in their financial and investment knowledge than men. Furthermore, they seem equally likely to engage in reckless financial behavior. The outcome suggests that the presence of excessive confidence may depend on the type of decision-maker rather than a person's gender. Lastly, findings from the dissertation show that not only adults are affected by the bias. Previous studies provide evidence of its presence among young decision-makers in highly controlled lab settings. This study uses a double-blind randomized controlled trial in which 4- to 6-year-olds illustrate substantial overconfidence in their ability to win stickers while playing an unfamiliar card game that mirrors simplified aspects of financial markets. Even after 60 trials and regular feedback on their performance, almost every second child continues to be overconfident. This is the first study to show that overconfidence persists under more realistic circumstances with a large number of repetitions, feedback, and performance-based incentives. Randomly selected participants are exposed to a video sequence that provides implicit feedback and additional information which further increases excessive confidence. The three studies use innovative methods and approaches to provide novel insights into the nature of overconfidence.
Book Synopsis Two Essays on Investor Overconfidence and Asset Prices by : Biljana Nikolic
Download or read book Two Essays on Investor Overconfidence and Asset Prices written by Biljana Nikolic and published by . This book was released on 2012 with total page 121 pages. Available in PDF, EPUB and Kindle. Book excerpt: This dissertation contains two essays about the impact of investor overconfidence on asset prices. The first essay examines the role of investor overconfidence in explaining the momentum effect. Using a comprehensive sample of U.S. equity mutual funds, I develop two new measures of investor overconfidence based on the characteristics and trading patterns of the fund managers. I find that stocks held by more overconfident managers experience greater momentum profits and stronger return reversals than stocks held by less overconfident managers. The difference in momentum profits between stocks held by more- and less-overconfident managers is not a compensation for risk, nor is it attributable to stock characteristics that influence momentum. My results provide direct support for the argument that stock return momentum is caused by investor overconfidence and biased self-attribution. In the second essay I investigate the impact of investor overconfidence on firm value and cost of capital. Consistent with theoretical predictions, I show that firms held by more overconfident investors exhibit significantly higher market-to-book ratios and significantly lower implied cost of capital. Firms with more overconfident investors experience lower subsequent stock returns, consistent with prices slowly moving back to fundamental values. Moreover, I find that firms with more overconfident investors issue more equity and make more investments, consistent with corporate managers exploiting market misvaluation in making financing and investment decisions.
Book Synopsis Investigating Overconfidence in Investor Behaviour by : Amitesh Kapoor
Download or read book Investigating Overconfidence in Investor Behaviour written by Amitesh Kapoor and published by . This book was released on 2014 with total page 9 pages. Available in PDF, EPUB and Kindle. Book excerpt: The purpose of this paper is to investigate to what extent financial investors are overconfident in financial markets. More importantly, I explored how this psychological attribute may have any bearing on investment performance. The main question is how ans why overconfidence affect investment performance, if at all if it does. I measured investor overconfidence by content analysing the investment pattern in top thirty stocks of BSE.
