Overreaction and investment choices : an experimental analysis

Biais, Bruno ; Nosic, Alen ; Weber, Martin

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URL: http://ub-madoc.bib.uni-mannheim.de/2490
URN: urn:nbn:de:bsz:180-madoc-24907
Document Type: Working paper
Year of publication: 2009
The title of a journal, publication series: None
Publication language: English
Institution: Business School > Sonstige - Fakultät für Betriebswirtschaftslehre
MADOC publication series: Lehrstuhl für ABWL, Finanzwirtschaft, insb. Bankbetriebslehre (Weber) > Working Papers
Subject: 330 Economics
Classification: JEL: G1 ,
Subject headings (SWD): Portfoliomanagement , Überreaktionseffekt , Experiment
Keywords (English): overreaction , underreaction , overconfidence , portfolio performance , portfolio risk
Abstract: We study the degree of overreaction and the relation of overreaction and psychological biases as well as financial consequences of overreaction in a controlled experimental setting with 104 participants. The majority of participants tend to overreact, however, the degree of overreaction is heterogeneous. A few subjects even underreact. We also measure the overconfidence of the participants with a miscalibration scale. In line with theoretical predictions we find that more overconfident subjects overreact more. We also find that overreaction is associated with higher levels of risk taking after good signals and lower levels of risk taking after bad signals. Finally, overreaction harms portfolio efficiency, as measured by the Sharpe ratio.
Additional information: Available at SSRN: http://ssrn.com/abstract

Das Dokument wird vom Publikationsserver der Universitätsbibliothek Mannheim bereitgestellt.

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