De Bondt, W. F. M., & Thaler, R. H. (). Does the stock market overreact. Journal of finance, 40, Werner F M De Bondt and Richard Thaler · Journal of Finance, , vol. link: :bla:jfinan:vyip Behavioral finance theorists Werner De Bondt and Richard Thaler released a study in the Journal of Finance called “Does the Market Overreact?” In their .
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Please contact the publisher regarding any further use of this work. Possible answers to these questions include the argument that investors may wait for years before realizing losses, and the observedseasonality of the market as a whole.
Both hypotheses imply a violation of weak-form market efficiency. What will happen if the equilibriummodel is misspecified?
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Finally, the choice of December as the “portfolio formation month” and, therefore, of January as the “starting month” debonrt essentially arbitrary. The problem is particularlysevere with respect to the winner portfolio.
The measure is related to the securities’ relative price movementsover the last six monthspriorto portfolioformationonly. Length of the Formation Period and No. The empirical evidence, based on CRSP monthly return data, is consistent with the overreaction hypothesis. Title Cited by Year Nudge: University of ChicagoBooth School of Business. Improving decisions about health, wealth, and happiness TC Leonard Constitutional Political Economy 19 4, Does the Stock Market Get my own profile Cited by View all All Since Citations h-index 96 78 iindex If no such quote is availablebecause the stockholdersreceive nothing for their shares, the return is entered as minus one.
When a security is delisted, suspendedor halted, CRSP determineswhether or not it is possible to trade at the last listed price. Much to our surprise, the effect is observed as late as five years after portfolio formation.
The effect of edbondt the numberof replications is to remove part of the debond noise.
De Bondt and Thaler,Does the Stock Market Overreact_百度文库
One of the earliest observations about overreactionin markets was made by J. De Bondt and Richard Thaler Source: Reinganum  has claimed that the small firm effect subsumes the PIE effect and that both are related to the same set of missing and againunknown factors. New articles by this author. JSTOR’s Terms and Conditions of Use provides, in part, that unless you have obtained prior permission, you may not download an entire issue of a journal or multiple copies of articles, and you may use content in the JSTOR archive only for your personal, non-commercial use.
People seem to make predictions according to a simple matching rule: Adds and drops of anal Their findings largely redefine the small firm effect as a “losing firm” effect around the turn-of-theyear.
In Section I, it was mentioned that the use of market-adjustedexcess returns is likely to bias the researchdesign against the overreactionhypothesis. This observation is in agreement with the naive version of the tax-loss selling hypothesis as explained by, e. The decision to study the CAR’s for a period of 36 months after the portfolio formation date reflects a compromise between statistical and economic considerations, namely, an adequatenumberof independent replications versus a time period long enough to study issues relevant to asset pricing theory.
Richard Thaler – Google Scholar Citations
The Theoryof Investment Value. The January phenomenon is usually explained by tax-loss selling see, e. Harcourt Brace Jovanovich, reprintof the edition. Careful examination of Figure 3 also reveals a tendency, on the part of the loser portfolio, to decline in value relativeto the market between October and December. And in again,in the third and fourthJanuaries? Grether  has replicatedthis finding under incentive compatible conditions. Instead, we will concentrate on an empiricaltest of the overreaction hypothesis.
It has now been well-established that Bayes’ rule is not an apt characterization of how individuals actually respond to new data Kahneman et al. Finally, in surprisingagreementwith Benjamin Graham’s claim, the overreactionphenomenon mostly occurs during the second and third year of the test period. We use information technology and tools to increase productivity and facilitate new forms of scholarship.
For, even if we knew the “correct” model of Em Rjt IFm it would explain only small part of the variation l1in Pit. Figure 1 shows the movement of the ACAR’s as we progress through the test period.
Werner De Bondt
An alternative behavioral explanation for the anomaly based on investor hypothesis e. The outstanding feature of Figure 3 is, once again, the January returns on the loser portfolio. Explanations are usually based on alleged misspecificationof the capital asset pricing model CAPM. Cumulative Average Residuals for Winner and Loser Portfolios of 35 Stocks months into the test period While not reported here, the results using market model and Sharpe-Lintner residualsare similar.
The results in Figure 3 have some of the properties of a “trading rule. There ‘ Of course,the variabilityof stock prices may also reflect changes in real interest rates. Winner portfolios, on the other hand, earn about 5. Mental accounting and consumer choice R Thaler Marketing science 4 3, If a security’s return is missing in a month subsequentto portfolio formation,then, from that moment on, the stock is permanently droppedfrom the portfolio and the CAR is an average of the availableresidualreturns.
What are the equilibria conditions for marketsin which some agents are not rational in the sense that they fail to revise their expectations accordingto Thalfr rule? Articles 1—20 Thalef more. In order to judge whether, for any month t, the average residual return makes a contribution to either A CAR or ACARL,t, we can test whether it w,t is significantly different from zero. The winner portfolio, on the other hand, gains value at the end of the year and loses some in January for more details, see De Bondt .
Therefore, the empirical analysis is based on three types of return residuals: Some empirical evidence on dynamic inconsistency R Thaler Economics letters thlaer 3,