Investor psychology and security market under- and overreactions

Journal of Finance

Volumn 53, Issue 6, 1998, Pages 1839-1885

  Daniel, Kent ^a,b   Hirshleifer, David ^c   Subrahmanyam, Avanidhar ^d  

^a NORTHWESTERN UNIVERSITY   (United States)

^b National Bereau of Economics Research   (United States)

^c UNIVERSITY OF MICHIGAN   (United States)

^d UNIVERSITY OF CALIFORNIA   (United States)

Author keywords

[No Author keywords available]

Indexed keywords

EID: 8744258405     PISSN: 00221082     EISSN: None     Source Type: Journal    
DOI: 10.1111/0022-1082.00077     Document Type: Article

References (128)

1. Abarbanell, Jeffery S., 1991, Do analysts' earnings forecasts incorporate information in prior stock price changes?, Journal of Accounting and Economics 14, 147-165.
2. Abarbanell, Jeffery S., and Victor Bernard, 1992, Analysts' overreaction/underreaction to earnings information as an explanation for anomalous stock price behavior, Journal of Finance 47, 1181-1207.
3. Admati, Anat, and Paul Pfleiderer, 1988, A theory of intraday patterns: Volume and price variability, Review of Financial Studies 1, 3-40.
4. Ahlers, David, and Josef Lakonishok, 1983, A study of economists' consensus forecasts, Management Science 29, 1113-1125.
5. Alpert, Murray, and Howard Raiffa, 1982, A progress report on the training of probability assessors; in Daniel Kahneman, Paul Slovic, and Amos Tversky, eds.: Judgement under Uncertainty: Heuristics and Biases (Cambridge University Press, Cambridge).
6. Anderson, Thomas W., 1984, An Introduction to Multivariate Statistical Analysis (John Wiley and Sons, New York).
7. Asness, Clifford S., 1995, The power of past stock returns to explain future stock returns, Working paper, University of Chicago.
8. Ball, Ray, S. P. Kothari, and Jay Shanken, 1995, Problems in measuring portfolio performance: An application to contrarian investment strategies, Journal of Financial Economics 38, 79-107.
9. Barberis, Nicholas, Andrei Shleifer, and Robert Vishny, 1998, A model of investor sentiment, Journal of Financial Economics, 49, 307-343.
10. Batchelor, Roy, and Parmi Dua, 1992, Conservatism and consensus-seeking among economic forecasters, Journal of Forecasting 11, 169-181.
11. Baumann, Andrea O., Raisa B. Deber, and Gail G. Thompson, 1991, Overconfidence among physicians and nurses: The micro-certainty, macro-uncertainty phenomenon, Social Science & Medicine 32, 167-174.
12. Bem, Daryl J., 1965, An experimental analysis of self-persuasion, Journal of Experimental Social Psychology 1, 199-218.
13. Benos, Alexandros, 1998, Aggressiveness and survival of overconfident traders, Journal of Financial Markets, forthcoming.
14. Bernard, Victor L., and Jacob K. Thomas, 1989, Post-earnings-announcement drift: Delayed price response or risk premium?, Journal of Accounting Research, Supplement 27, 1-48.
15. Bernard, Victor L., and Jacob K. Thomas, 1990, Evidence that stock prices do not fully reflect the implications of current earnings for future earnings, Journal of Accounting and Economics 13, 305-340.
16. Bernardo, Antonio and Ivo Welch, 1998, On the evolution of overconfidence and entrepreneurs, UCLA Working Paper #9-97.
17. Bjerring, James H., Josef Lakonishok, and Theo Vermaelen, 1983, Stock prices and financial analysts' recommendations, Journal of Finance 38, 187-204.
18. Black, Fischer, 1986, Noise, Journal of Finance 41, 529-543.
19. Brav, Alon, and Paul A. Gompers, 1997, Myth or reality? The long-run underperformance of initial public offerings: Evidence from venture and nonventure capital-backed companies, Journal of Finance 52, 1791-1821.
20. Brown, Steven J., and Peter F. Pope, 1996, Post-earnings announcement drift?, Working paper, New York University.
21. Caballé, Jordi, and József Sákovics, 1996, Overconfident speculation with imperfect competition, Working paper, Universitat Autonoma de Barcelona.
22. Campbell, John Y., and John H. Cochrane, 1994, By force of habit: A consumption based explanation of aggregate stock market behavior, Working paper, University of Chicago.
23. Campbell, John Y., and Albert S. Kyle, 1993, Smart money, noise trading, and stock price behaviour, Review of Economic Studies 60, 1-34.
24. Carmel, Jonathan Paul, and Martin Young, 1997, Long horizon mean reversion in the stock market: The postwar years, Working paper, University of Michigan Business School.
25. Chan, Louis K.C., Narasimhan Jegadeesh, and Josef Lakonishok, 1996, Momentum strategies, Journal of Finance 51, 1681-1714.
26. Chopra, Navin, Josef Lakonishok, and Jay R. Ritter, 1992, Measuring abnormal performance: Do stocks overreact?, Journal of Financial Economics 31, 235-268.
27. Christensen-Szalanski, Jay J., and James B. Bushyhead, 1981, Physicians' use of probabilistic information in a real clinical setting, Journal of Experimental Psychology: Human Perception and Performance 7, 928-935.
28. Cooper, Arnold C., Carolyn W. Woo, and William C. Dunkelberg, 1988, Entrepreneurs' perceived chances for success, Journal of Business Venturing 3, 97-108.
29. Cornett, Marcia Millon, Hamid Mehran, and Hassann Tehranian, 1998, Are financial markets overly optimistic about the prospects of firms that issue equity? Evidence from voluntary versus involuntary equity issuance by banks, Journal of Finance, this issue, 2139-2159.
30. Daniel, Kent D., 1996, The power and size of asset pricing tests, Working paper, University of Chicago.
31. Daniel, Kent D., David Hirshleifer, and Avanidhar Subrahmanyam, 1997, Investor psychology, University of Michigan Business School Research Support Working paper 98009.
32. Daniel, Kent D., and Sheridan Titman, 1998, Untangling size, book-to-market and momentum effects, Working paper, Northwestern University.
33. Daniel, Kent D., Sheridan Titman, and John Wei, 1996, Cross-sectional variation in common stock returns in Japan, Working paper, Northwestern University.
34. DeBondt, Werner F. M., 1991, What do economists know about the stock market?, Journal of Portfolio Management 17, 84-91.
35. DeBondt, Werner F. M., and Richard H. Thaler, 1985, Does the stock market overreact?, Journal of Finance 40, 793-808.
36. DeBondt, Werner F. M., and Richard H. Thaler, 1987, Further evidence on investor overreaction and stock market seasonality, Journal of Finance 42, 557-581.
37. DeBondt, Werner F. M., and Richard H. Thaler, 1990, Do security analysts overreact?, American Economic Review 80, 52-57.
38. DeBondt, Werner F. M., and Richard H. Thaler, 1995, Financial decision-making in markets and firms: A behavioral perspective; in Robert A. Jarrow, Voijslav Maksimovic, and William T. Ziemba, eds.: Finance, Handbooks in Operations Research and Management Science 9, 385-410 (North Holland, Amsterdam).
39. DeChow, Patricia M., and Richard G. Sloan, 1997, Returns to contrarian investment strategies: Tests of naive expectations hypotheses, Journal of Financial Economics 41, 3-27.
40. De Long, J. Bradford, Andrei Shleifer, Lawrence Summers, and Robert J. Waldmann, 1990b, Noise trader risk in financial markets, Journal of Political Economy 98, 703-738.
41. De Long, J. Bradford, Andrei Shleifer, Lawrence Summers, and Robert J. Waldmann, 1990a, Positive feedback investment strategies and destabilizing rational speculation, Journal of Finance 45, 375-395.
42. De Long, J. Bradford, Andrei Shleifer, Lawrence Summers, and Robert J. Waldmann, 1991, The survival of noise traders in financial markets, Journal of Business 64, 1-20.
43. Desai, Hemang, and Prem C. Jain, 1997, Long-run common stock returns following stock splits and reverse splits dividends, Journal of Business 70, 409-434.
44. Dharan, Bala G., and David Ikenberry, 1995, The long-run negative drift of post-listing stock returns, Journal of Finance 50, 1547-1574.
45. Einhorn, Hillel J., 1980, Overconfidence in judgment, New Directions for Methodology of Social and Behavioral Science 4, 1-16.
46. Elton, Edwin J., Martin J. Gruber, and Mustafa N. Gultekin, 1984, Professional expectations: Accuracy and diagnosis of errors, Journal of Financial and Quantitative Analysis 19, 351-363.
47. Fama, Eugene F., 1998, Market efficiency, long-term returns and behavioral finance, Journal of Financial Economics, forthcoming.
48. Fama, Eugene F., and Kenneth R. French, 1988, Permanent and temporary components of stock prices, Journal of Political Economy 96, 246-273.
49. Fama, Eugene F., and Kenneth R. French, 1996, Multifactor explanations of asset pricing anomalies, Journal of Finance 51, 55-84.
50. Fischhoff, Baruch, 1982, For those condemned to study the past: Heuristics and biases in hindsight; in Daniel Kahneman, Paul Slovic, and Amos Tversky, eds.: Judgement under Uncertainty: Heuristics and Biases (Cambridge University Press, Cambridge).
51. Fischhoff, Baruch, Paul Slovic, and Sarah Lichtenstein, 1977, Knowing with certainty: The appropriateness of extreme confidence, Journal of Experimental Psychology 3, 552-564.
52. Froot, Kenneth, and Jeffery A. Frankel, 1989, Forward discount bias: Is it an exchange risk premium?, Quarterly Journal of Economics 104, 139-161.
53. Gervais, Simon, and Terance Odean, 1998, Learning to be overconfident, Working paper, Wharton School.
54. Glosten, Lawrence R., and Paul R. Milgrom, 1985, Bid, ask and transaction prices in a specialist market with heterogeneously informed traders, Journal of Financial Economics 14, 71-100.
55. Gompers, Paul, and Josh Lerner, 1998, Venture capital distributions: Short-run and long-run reactions, Journal of Finance, this issue, 2161-2183.
56. Greenwald, Anthony G., 1980, The totalitarian ego: Fabrication and revision of personal history, American Psychologist 3, 603-618.
57. Griffin, Dale, and Amos Tversky, 1992, The weighing of evidence and the determinants of overconfidence, Cognitive Psychology 24, 411-435.
58. Grinblatt, Mark, Ronald W. Masulis, and Sheridan Titman, 1984, The valuation effects of stock splits and stock dividends, Journal of Financial Economics 13, 97-112.
59. Grossman, Sanford J., and Joseph E. Stiglitz, 1980, On the impossibility of informationally efficient markets, American Economic Review 70, 393-408.
60. Groth, John C., Wilbur G. Lewellen, Gary C. Scharbaum, and Ronald C. Lease, 1979, An analysis of brokerage house securities recommendations, Financial Analysts' Journal 35, 32-40.
61. Harris, Milton, and Artur Raviv, 1985, A sequential signalling model of convertible debt call policy, Journal of Finance 40, 1263-1281.
62. Haugen, Robert A., and Nardin L. Baker, 1996, Commonality in the determinants of expected stock returns, Journal of Financial Economics 41, 401-439.
63. Hirshleifer, David, Avanidhar Subrahmanyam, and Sheridan Titman, 1994, Security analysis and trading patterns when some investors receive information before others, Journal of Finance 49, 1665-1698.
64. Hong, Harrison, and Jeremy Stein, 1998, A unified theory of underreaction, momentum trading and overreaction in asset markets, Working paper, MIT Sloan School of Management.
65. Ikenberry, David, Josef Lakonishok, and Theo Vermaelen, 1995, Market underreaction to open market share repurchases. Journal of Financial Economics 39, 181-208.
66. Ikenberry, David, Graeme Rankine, and Earl K. Stice, 1996, What do stock splits really signal?, Journal of Financial and Quantitative Analysis 31, 357-375.
67. Jain, Prem C., and Omesh Kini, 1994, The post-issue operating performance of IPO firms, Journal of Finance 49, 1699-1726.
68. Jegadeesh, Narasimhan, 1990, Evidence of predictable behavior of security returns, Journal of Finance 45, 881-898.
69. Jegadeesh, Narasimhan, and Sheridan Titman, 1993, Returns to buying winners and selling losers: Implications for stock market efficiency, Journal of Finance 48, 65-91.
70. Jung, Kooyul, Yong-Cheol Kim, and René M. Stulz, 1996, Timing, investment opportunities, managerial discretion, and the security issue decision, Journal of Financial Economics 42, 159-185.
71. Kang, Jun-Koo, Yong-Cheol Kim, and René M. Stulz, 1996, The underreaction hypothesis and the new issue puzzle: Evidence from Japan, NBER Working paper 5819.
72. Kaul, Gautam, and M. Nimalendran, 1990, Price reversals: Bid-ask errors or market overreaction?, Journal of Financial Economics 28, 67-93.
73. Kidd, John B., 1970, The utilization of subjective probabilities in production planning, Acta Psychologica 34, 338-347.
74. Kim, Myung-jig, Charles R. Nelson, and Richard Startz, 1988, Mean reversion in stock prices? A reappraisal of the empirical evidence, Review of Economic Studies 58, 551-528.
75. Kitayama, Shinobu, H. Takagi, and Hisaya Matsumoto, 1995, Causal attribution of success and failure: Cultural psychology of the Japanese self, Japanese Psychological Review 38, 247-280.
76. Kleidon, Allan W., 1986, Bias in small-sample tests of stock price rationality, Journal of Business 59, 237-261.
77. Kyle, Albert S., 1985, Continuous auctions and insider trading, Econometrica 53, 1315-1335.
78. Kyle, Albert, and F. Albert Wang, 1997, Speculation duopoly with agreement to disagree: Can overconfidence survive the market test?, Journal of Finance 52, 2073-2090.
79. Lakonishok, Josef, Andrei Shleifer, and Robert W. Vishny, 1994, Contrarian investment, extrapolation and risk, Journal of Finance 49, 1541-1578.
80. Lakonishok, Josef, and Theo Vermaelen, 1990, Anomalous price behavior around repurchase tender offers, Journal of Finance 45, 455-477.
81. Langer, Ellen J., and Jane Roth, 1975, Heads I win tails it's chance: The illusion of control as a function of the sequence of outcomes in a purely chance task, Journal of Personality and Social Psychology 32, 951-955.
82. La Porta, Rafael, Josef Lakonishok, Andrei Shleifer, and Robert W. Vishny, 1997, Good news for value stocks: Further evidence on market efficiency, Journal of Finance 52, 859-874.
83. Lehmann, Bruce N., 1990, Fads, martingales, and market efficiency, Quarterly Journal of Economics 105, 1-28.
84. Lichtenstein, Sarah, Baruch Fischhoff, and Lawrence Phillips, 1982, Calibration of probabilities: The state of the art to 1980; in Daniel Kahneman, Paul Slovic, and Amos Tversky, eds.: Judgement under Uncertainty: Heuristics and Biases (Cambridge University Press, Cambridge).
85. Ljungqvist, Alexander P., 1997, Pricing initial public offerings: Further evidence from Germany, European Economic Review 41, 1309-1320.
86. Loughran, Tim, and Jay Ritter, 1995, The new issues puzzle, The Journal of Finance 50, 23-52.
87. Loughran, Tim, and Jay Ritter, 1997, The operating performance of firms conducting seasoned equity offerings, The Journal of Finance 52, 1823-1850.
88. Loughran, Tim, and Jay Ritter, 1998, Uniformly least powerful tests of market efficiency, Working paper, University of Florida.
89. Loughran, Tim, Jay Ritter, and Kristian Rydqvist, 1994, Initial public offerings: International insights, Pacific Basin Finance Journal 2, 165-199.
90. MacKinlay, A. Craig, 1995, Multifactor models do not explain deviations from the CAPM, Journal of Financial Economics 38, 3-28.
91. Marsh, Terry A., and Robert C. Merton, 1986, Dividend variability and variance bounds tests for the rationality of stock market prices, American Economic Review 76, 483-498.
92. McConnell, John J., and Gary C. Sanger, 1987, The puzzle in post-listing common stock returns, Journal of Finance 42, 119-140.
93. Mendenhall, Richard, 1991, Evidence of possible underweighting of earnings-related information, Journal of Accounting Research 29, 170-180.
94. Michaely, Roni, Richard H. Thaler, and Kent L. Womack, 1995, Price reactions to dividend initiations and omissions: Overreaction or drift?, Journal of Finance 50, 573-608.
95. Michaely, Roni, and Kent Womack, 1996, Conflict of interest and the credibility of underwriter analyst recommendations, Working paper, Cornell University.
96. Mikkelson, W., M. Megan Partch, and Kshiti Shah, 1997, Ownership and operating performance of companies that go public, Journal of Financial Economics 44, 281-307.
97. Miller, Dale T., and Michael Ross, 1975, Self-serving bias in attribution of causality: Fact or fiction?, Psychological Bulletin 82, 213-225.
98. Neale, Margaret, and Max Bazerman, 1990, Cognition and Rationality in Negotiation (The Free Press, New York).
99. Odean, Terrance, 1998, Volume, volatility, price, and profit when all traders are above average, Journal of Finance, this issue, 1887-1934.
100. Opler, Tim C., and Sheridan Titman, 1996, The debt-equity choice, Working paper, Fisher College of Business, Ohio State University.
101. Oskamp, Stuart, 1965, Overconfidence in case study judgements, Journal of Consulting Psychology 29, 261-265.
102. Pagano, Marco, Fabio Panetta, and Luigi Zingales, 1998, Why do companies go public? An empirical analysis, Journal of Finance 53, 27-64.
103. Poterba, James M., and Lawrence H. Summers, 1988, Mean reversion in stock returns: Evidence and implications, Journal of Financial Economics 22, 27-59.
104. Rees, William P., 1996, The arrival rate of initial public offers in the UK, Working paper 96/8, Department of Accounting and Finance, University of Glasgow.
105. Richards, Anthony J., 1997, Winner-loser reversals in national stock market indices: Can they be explained?, Journal of Finance 52, 2129-2144.
106. Ritter, Jay R., 1991, The long-run performance of initial public offerings, Journal of Finance 46, 3-27.
107. Rouwenhorst, K. Geert, 1998a, International momentum strategies, Journal of Finance 53, 267-284.
108. Rouwenhorst, K. Geert, 1998b, Local return factors and turnover in emerging stock markets, Working peper, Yale School of Management.
109. Rozeff, Michael S., and Mir A. Zaman, 1988, Market efficiency and insider trading: New evidence, Journal of Business 61, 25-44.
110. Russo, J. Edward, and Paul J. H. Schoemaker, 1992, Managing overconfidence, Sloan Management Review 33, 7-17.
111. Seyhun, H. Nejat, 1986, Insiders' profits, costs of trading, and market efficiency, Journal of Financial Economics 61, 189-212.
112. Seyhun, H. Nejat, 1988, The information content of aggregate insider trading, Journal of Business 61, 1-24.
113. Seyhun, H. Nejat, 1997, Investment Intelligence: Tips from Insider Trading (MIT Press, Cambridge).
114. Shefrin, Hersh, 1997, Behavioral option pricing, Working paper, Santa Clara University.
115. Shiller, Robert J., 1981, Do stock prices move too much to be justified by subsequent changes in dividends?, American Economic Review 71, 421-498.
116. Shiller, Robert J., 1984, Stock prices and social dynamics, Brookings Papers on Economic Activity Review 2, 457-498.
117. Shiller, Robert J., 1989, Market Volatility (MIT Press, Cambridge).
118. Spiess, D. Katherine, and John Affleck-Graves, 1995, Underperformance in long-run stock returns following seasoned equity offerings, Journal of Financial Economics 38, 243-268.
119. Stael von Holstein, C., 1972, Probabilistic forecasting: An experiment related to the stock market, Organizational Behavior and Human Performance 8, 139-158.
120. Svenson, Ola, 1981, Are we all less risky and more skillful than our fellow drivers?, Acta Psychologica 47, 143-148.
121. Taylor, Shelley E., and Jonathan D. Brown, 1988, Illusion and well-being: A social psychological perspective on mental health, Psychological Bulletin 103, 193-210.
122. Teoh, Siew Hong, Ivo Welch, and T. J. Wong, 1998, Earnings management and the underperformance of seasoned equity offerings, Journal of Financial Economics 50, 63-69.
123. Teoh, Siew Hong, T. J. Wong, and Gita Rao, 1998, Are accruals during initial public offerings opportunistic?, Review of Accounting Studies, forthcoming.
124. Wagenaar, Willem, and Gideoan Keren, 1986, Does the expert know? The reliability of predictions and confidence rations of experts; in Erik Hollnagel, Giuseppe Mancini, and David D. Woods, eds.: Intelligent Decision Support in Process Environment (Springer, Berlin).
125. Wang, F. Albert, 1998, Strategic trading, asymmetric information and heterogeneous prior beliefs, Journal of Financial Markets, forthcoming.
126. Wilson, Pete, 1986, The relative information contents of accruals and cash flows: Combined evidence of the earnings announcement and annual report release date, Journal of Accounting Research Supplement, 165-200.
127. Womack, Kent L., 1996, Do brokerage analysts' recommendations have investment value?, Journal of Finance 51, 137-168.
128. Yates, J. Frank, 1990, Judgement and Decision Making (Prentice Hall, Englewood Cliffs, New Jersey).