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606
Market Efficiency, Long-Term Returns, and Behavioral Finance
, 1998
"... Market efficiency survives the challenge from the literature on long-term return anomalies. Consistent with the market efficiency hypothesis that the anomalies are chance results, apparent overreaction to information is about as common as underreaction, and post-event continuation of pre-event abnor ..."
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Cited by 787 (6 self)
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Market efficiency survives the challenge from the literature on long-term return anomalies. Consistent with the market efficiency hypothesis that the anomalies are chance results, apparent overreaction to information is about as common as underreaction, and post-event continuation of pre-event abnormal returns is about as frequent as post-event reversal. Most important, consistent with the market efficiency prediction that apparent anomalies can be due to methodology, most long-term return anomalies tend to disappear with reasonable changes in technique.
Investor psychology and security market under- and overreactions
- Journal of Finance
, 1998
"... 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 ..."
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Cited by 698 (43 self)
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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 autocorrela-tions ~“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 fi-nancial 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 re-f lect all publicly available information. Some of the more pervasive anoma-
Bad news travels slowly: Size, analyst coverage, and the profitability of momentum strategies
- Journal of Finance
, 2000
"... Various theories have been proposed to explain momentum in stock returns. We test the gradual-information-diffusion model of Hong and Stein (1999) and establish three key results. First, once one moves past the very smallest stocks, the profitability of momentum strategies declines sharply with firm ..."
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Cited by 339 (25 self)
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Various theories have been proposed to explain momentum in stock returns. We test the gradual-information-diffusion model of Hong and Stein (1999) and establish three key results. First, once one moves past the very smallest stocks, the profitability of momentum strategies declines sharply with firm size. Second, holding size fixed, momentum strategies work better among stocks with low analyst coverage. Finally, the effect of analyst coverage is greater for stocks that are past losers than for past winners. These findings are consistent with the hypothesis that firm-specific information, especially negative information, diffuses only gradually across the investing public. SEVERAL RECENT PAPERS HAVE DOCUMENTED that, at medium-term horizons ranging from three to 12 months, stock returns exhibit momentum-that is, past winners continue to perform well, and past losers continue to perform poorly. For example, Jegadeesh and Titman (1993), using a U.S. sample of NYSE/ AMEX stocks over the period from 1965 to 1989, find that a strategy that buys past six-month winners (stocks in the top performance decile) and shorts past six-month losers (stocks in the bottom performance decile) earns approximately one percent per month over the subsequent six months. Not only is this an economically interesting magnitude, but the result also appears to be robust: Rouwenhorst (1998) obtains very similar numbers in a
Capital markets research in accounting
, 2001
"... I review empirical research on the relation between capital markets and financial statements.The principal sources of demand for capital markets research in accounting are fundamental analysis and valuation, tests of market efficiency, and the role of accounting numbers in contracts and the politica ..."
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Cited by 300 (9 self)
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I review empirical research on the relation between capital markets and financial statements.The principal sources of demand for capital markets research in accounting are fundamental analysis and valuation, tests of market efficiency, and the role of accounting numbers in contracts and the political process.The capital markets research topics of current interest to researchers include tests of market efficiency with respect to accounting information, fundamental analysis, and value relevance of financial reporting.Evidence from research on these topics is likely to be helpful in capital market investment decisions, accounting standard setting, and corporate financial
Stock Market Driven Acquisitions.”
- Journal of Financial Economics
, 2003
"... Abstract We present a model of mergers and acquisitions based on stock market misvaluations of the combining firms. The key ingredients of the model are the relative valuations of the merging firms and the market's perception of the synergies from the combination. The model explains who acquir ..."
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Cited by 291 (10 self)
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Abstract We present a model of mergers and acquisitions based on stock market misvaluations of the combining firms. The key ingredients of the model are the relative valuations of the merging firms and the market's perception of the synergies from the combination. The model explains who acquires whom, the choice of the medium of payment, the valuation consequences of mergers, and merger waves. The model is consistent with available empirical findings about characteristics and returns of merging firms, and yields new predictions as well. JEL classification: G34
The Investment behavior and performance of various investor
- HAC standard errors & covariance (Prewhitening with lags = 1, Bartlett kernel, Newey-West fixed bandwidth = 4.0000) Variable Coefficient Std. Error t-Statistic Prob.
, 2000
"... Abstract Using data from Finland, this study analyzes the extent to which past returns determine the propensity to buy and sell. It also analyzes whether these di!erences in past-return-based behavior and di!erences in investor sophistication drive the performance of various investor types. We &quo ..."
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Cited by 249 (15 self)
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Abstract Using data from Finland, this study analyzes the extent to which past returns determine the propensity to buy and sell. It also analyzes whether these di!erences in past-return-based behavior and di!erences in investor sophistication drive the performance of various investor types. We "nd that foreign investors tend to be momentum investors, buying past winning stocks and selling past losers. Domestic investors, particularly households, tend to be contrarians. The distinctions in behavior are consistent across a variety of past-return intervals. The portfolios of foreign investors seem to outperform the portfolios of households, even after controlling for behavior di!erences. 2000 Elsevier Science S.A. All rights reserved. JEL classixcation: G10
Price Momentum and Trading Volume
- Journal of Finance
"... This study shows that past trading volume provides an important link between “momentum ” and “value ” strategies. Specifically, we find that firms with high ~low! past turnover ratios exhibit many glamour ~value! characteristics, earn lower ~higher! future returns, and have consistently more negativ ..."
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Cited by 195 (11 self)
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This study shows that past trading volume provides an important link between “momentum ” and “value ” strategies. Specifically, we find that firms with high ~low! past turnover ratios exhibit many glamour ~value! characteristics, earn lower ~higher! future returns, and have consistently more negative ~positive! earnings surprises over the next eight quarters. Past trading volume also predicts both the magnitude and persistence of price momentum. Specifically, price momentum effects reverse over the next five years, and high ~low! volume winners ~losers! experience faster reversals. Collectively, our findings show that past volume helps to reconcile intermediate-horizon “underreaction ” and long-horizon “overreaction ” effects. FINANCIAL ACADEMICS AND PRACTITIONERS have long recognized that past trading volume may provide valuable information about a security. However, there is little agreement on how volume information should be handled and interpreted. Even less is known about how past trading volume interacts with past returns in the prediction of future stock returns. Stock returns and
Heterogeneous agent models in economics and finance
- IN HANDBOOK OF COMPUTATIONAL ECONOMICS (EDS
, 2005
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