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Boys Will Be Boys: Gender, Overconfidence, And Common Stock Investment
Abstract
Theoretical models predict that overconfident investors trade excessively. We test this prediction by partitioning investors on gender. Psychological research demonstrates that, in areas such as finance, men are more overconfident than women. Thus, theory predicts that men will trade more excessively than women. Using account data for over 35,000 households from a large discount brokerage, we analyze the common stock investments of men and women from February 1991 through January 1997. We document that men trade 45 percent more than women. Trading reduces men's net returns by 2.65 percentage points a year as opposed to 1.72 percentage points for women. © 2000 the President and Fellows of Harvard College and the Massachusetts Institute of Technology
... Gender, age group, educational level, and position held in the hotel are examples of such characteristics that could potentially impact economic and investment decisions. For example, research has shown that gender can influence risk-taking behavior (Barber and Odean, 2001), age group can affect consumer preferences (Voss and Cova, 2006), educational level can affect investment choices (Anselmsson, 2006), and position in the hotel can impact managerial decision-making (Graham et al., 2009). By collecting this information, the research can explore whether there are any patterns or correlations between individual characteristics and investment preferences among hotel executives. ...
... In the subsequent stage of our analysis, we aimed to investigate whether certain individual characteristics of participants, such as their gender, age, education level, and hierarchical position within the company, could systematically explain their perception of the changes in their investment planning caused by the pandemic and their willingness to curtail investment costs in the new environment. Previous studies (Barber and Odean, 2001; Voss and Cova, 2006; Anselmsson, 2006;Graham et al., 2009) have suggested that such factors can play a crucial role in shaping financial decisions, and our research supported this finding. Through the use of χ2 tests and Cramer's V value, we identified a significant association between the age of hotel executives and the extent to which they aimed to reduce investment spending after the pandemic. ...
... Management & Business Excellence, vol. 26(7)(8), pp: 825-839 ...
The goal of this research is to identify the investment preferences of top managers and owners of four- and five-star hotels and the impact of the COVID-19 pandemic on their investment planning. The study examines various factors, including the individual characteristics of executives (such as gender, age group, education level, and position held in the hotel unit), and their perceptions of the pandemic's effects on their investment planning. To the best of our knowledge, this is the first attempt to capture the pandemic's impact on investment options, planning, and spending for luxury hotels.
The study first conducted a structured questionnaire survey to record investment priorities under two distinct scenarios: one prior to the pandemic and another after the pandemic's spread and containment measures. Statistical tests were then used to compare the results between the two periods, revealing clear differences in investment choices among top executives and owners. Chi-square tests were also employed to examine the impact of individual characteristics on executives' perceptions of the pandemic's impact on their investment planning and their willingness to limit investment spending. Ordinal regressions were used to explore association further.
The findings show that participants' age group was associated with their perception of the pandemic's negative impact on investment planning and their willingness to limit investment spending. Participants' position in the hotel unit partially explained their willingness to reduce investment resources during the pandemic. Therefore, the research highlights that the age of higher management in luxury hotels impacts the business's ability to adapt to the post-COVID-19 environment. The results also suggest that policy makers' public measures aimed at enhancing executives' willingness to invest during difficult periods should consider these factors.
... Motivasi penelitian ini adalah sebagai berikut: pertama, umur sering dikaitkan secara langsung mempengaruhi perilaku menghindar risiko, pendapat umum seputar perilaku menghindar risiko selama ini ialah semakin berumur seseorang maka akan cenderung untuk menghindari risiko, dan sebaliknya (Riley & Chow, 1992;Wang & Hanna 1997;Dror et al., 1998;Bellante & Green, 2004, Chang et al., 2004Gardner & Steinberg, 2005;Grable et al., 2009;Chauffman et al., 2010;Ionescu & Turlea, 2011;Yao et al., 2011;Amaefula et al., 2012;Rolison et al., 2012;Duasa & Yusof, 2013). Selain itu, variabel gender tidak kalah menariknya, gender tidak jarang digunakan sebagai variabel yang mempengaruhi perilaku risiko, perempuan sering disimpulkan lebih berperilaku menghindar risiko dibandingkan laki-laki, hal ini didukung dengan penelitian empiris dari (Riley & Chow, 1992;Barber & Odean, 2001;Faff et al., 2008;Duasa & Yusof, 2013;Jayathilake, 2013). Selanjutnya, pendidikan juga sering dikaitkan dengan cara seseorang menghadapi risiko, semakin berpendidikan seseorang, maka akan semakin berperilaku menyukai risiko dan berlaku sebaliknya (Riley & Chow, 1992;Chang et al., 2004;Lin, 2009;Amaefula et al. 2012;Duasa & Yusof, 2013). ...
... Kedua, berbagai penelitian sebelumnya menunjukkan hasil yang tidak konsisten pada variabel umur dimana Riley & Chow (1992), Bellate (2004), Chang et al. (2004), Gardner & Steinberg (2005), Grable (2009), Chauffman et al. (2010, Yao et al. (2011), Rolison et al. (2012, dan Duasa & Yusof (2013) Dror et al. (1998), Faff et al. (2008, dan Jayathilake (2013) tidak menemukan adanya pengaruh signifikan antara umur dan perilaku risiko. Sedangkan pada variabel gender Barber & Odean (2001), Faff et al. (2008), dan Jayathilake (2013) yang menyatakan perempuan lebih berperilaku menghindar risiko dibandingkan dengan laki-laki. Hal ini bertentangan dengan penelitian yang dilakukan oleh Grable et al. (2009) dan Wendy (2010) yang menyatakan tidak ada perbedaan perilaku risiko antara laki-laki dan perempuan. ...
... Dalam mempertimbangkan faktor yang mempengaruhi perilaku menghindar risiko, perempuan dianggap lebih berperilaku menghindar risiko dibandingkan dengan lakilaki, sesuai dengan hasil penelitian yang dilakukan oleh Riley & Chow (1992), Barber & Odean (2001), Duasa & Yusof (2013), Jayathilake (2013) yang menunjukkan hasil laki-laki dan perempuan mempunyai perilaku yang berbeda dalam menghadapi risiko. Berdasarkan penelitian terdahulu, perempuan dianggap lebih berperilaku menghindar risiko dibandingkan dengan laki-laki. ...
This research aims to examines and proves the influence of auditor’s risk behavior generated by age, gender, and education. This is important because risk is the main focus on Professional Standard on Auditing (PSA) as auditor guidance to audit of financial statement, so it is important to examine that auditor perception and propensity to face that risk.This study is a quantitative approach, which respondents are auditors involved in the audit of financial statements in Indonesian. The data was collected using a questionnaire Ionescu & Turlea (2011). This research using age (X1), gender (X2), and education (X3) as independent variable and auditor’s risk behavior (Y) as dependent variable. Hypothesis testing was performed using multiple linear regression with a 5% significance level. The result show age has a positive and significant influence on auditor’s risk behavior, in a financial audit context, while gender and education has not significant influence on auditor’s risk behavior.Keywords: Risk Averse, Age, Gender, Education, Auditor’s Risk Behavior.
... Female loan officers extend loans with a lower likelihood of turning bad than male loan officers, as per Thorsten et al. (2013). Building on gender differences, the literature reveals that women have lower confidence in investment tasks (Estes and Hosseini, 1988) and because of overconfidence, men trade much more than women (Barber and Odean, 2001). Gender differences also impact monitoring ability. ...
... As per a foremost brokerage firm, gender is the third most important factor in investing after age and income (Bajtelsmit and Bernasek, 1996). Women have different attitudes toward money and investing than men (Barber and Odean, 2001). ...
... However, they accorded higher importance to 11 of 13 annual report sections. It can be because women are less overconfident than men; therefore, they tend to underrate themselves (Barber and Odean, 2001), or it can also be due to their lower financial knowledge (Bhatia and Nelson, in press). It can be due to lesser participation by women investors in attending financial knowledge programmes. ...
This study uses gender in financial research. The purpose is to examine women investors’ perceptions of the importance and understanding of sections of annual reports and problems that restrict utility. It also explores the perception towards the other announcements made by the corporates. Data was collected using a questionnaire sent to 700 individual investors. Descriptive statistics and non-parametric tests were used to analyse the data received from 341 respondents (48.71% response rate). Results indicated a significant difference between the frequency of use of annual reports and other announcements amongst both genders. Understanding various sections of annual reports is better for male investors than female investors. Women investors’ deficiencies in annual report utility had various implications for practitioners, standard setters, and regulatory bodies. Drastic improvements are needed in the awareness programmes for women investors.
... Selain itu, pengaruh lingkungan, dan faktor karakeristik individu seperti gender, tingkat pendidikan, etnis, status perkawinan dan umur juga dapat memengaruhi keputusan investasi investor (Grable, 2000). Secara spesifik Barber & Odean (2001) menemukan overconfidence bias menyebabkan perdagangan berlebihan di mana pria lebih banyak berdagang daripada wanita. Investor pria memiliki toleransi risiko yang lebih tinggi daripada wanita (Charness & Gneezy, 2012). ...
... Beberapa peneltian mengatakan overconfidence bias merupakan faktor utama dalam menjelaskan tingginya volume perdagangan yang diamati di pasar keuangan (Barber & Odean, 2001;Daniel dan Hirshleifer, 2015). Dar dan Hakeem (2015) menegaskan laki-laki memiliki perspektif dan preferensi yang berbeda di berbagai bidang seperti pengambilan keputusan keuangan. ...
... Dar dan Hakeem (2015) menegaskan laki-laki memiliki perspektif dan preferensi yang berbeda di berbagai bidang seperti pengambilan keputusan keuangan. Secara khusus, investor wanita lebih menghindari risiko dan kurang toleran terhadap risiko dibandingkan pria (Charness dan Gneezy, 2012), selain itu, investor wanita kurang percaya diri (Barber & Odean, 2001) dan kurang melek finansial dibandingkan pria (Lusardi & Mitchell, 2011). Menurut Baffour et al., (2019) bahwa dalam pengambilan keputusan di bawah ketidakpastian terdapat perbedaan antara pria dan wanita, yang mana wanita lebih cenderung menghindari risiko dibandingkan pria. ...
Tujuan dari penelitian ini adalah untuk melihat bagaimana overconfidence bias mempengaruhi keputusan investasi investor individu di Indonesia. Dengan 298 investor saham yang sesuai dengan kebutuhan sampel penelitian, teknik analisis yang digunakan dalam penelitian ini adalah PLS-MGA dengan menggunakan tool WarpPLS 7.0. Uji validitas dan reliabilitas dilakukan sebelum hipotesis penelitian divalidasi (validitas konvergen, validitas diskriminan, reliabilitas komposit, pengaruh langsung, dan analisis multikelompok). Bias terlalu percaya diri memiliki pengaruh yang menguntungkan pada pengambilan keputusan investasi, menurut temuan pengujian hipotesis penelitian, dan fungsi moderasi gender divalidasi. Temuan ini menyiratkan bahwa perilaku bias terlalu percaya diri investor mengarah pada keputusan investasi yang tidak rasional, dan bahwa investor pria lebih rentan daripada investor wanita untuk terlalu percaya diri dalam keputusan investasi mereka.
... Trading frequency is sometimes used as a proxy for overconfidence when examining investor behaviour using stock brokerage data. These hypotheses are backed up by the findings of Barber and Odean (2001), who conclude that individual investors in the United States engage in excessive trading, expose themselves to substantial risk, and make subpar ex-post investment judgments as the investment portfolio returns are inferior to a benchmark marketwide portfolio return [4]. Naturally, the frequency with which one trades is an unreliable indicator of overconfidence. ...
... Trading frequency is sometimes used as a proxy for overconfidence when examining investor behaviour using stock brokerage data. These hypotheses are backed up by the findings of Barber and Odean (2001), who conclude that individual investors in the United States engage in excessive trading, expose themselves to substantial risk, and make subpar ex-post investment judgments as the investment portfolio returns are inferior to a benchmark marketwide portfolio return [4]. Naturally, the frequency with which one trades is an unreliable indicator of overconfidence. ...
... But there's also research that shows how overconfident investors might harm their returns by trading too often. According to research by Barber and Odean (2002), when traders are exposed to a new trading strategy, they end up making fewer trades and less money overall [4]. This conclusion is backed up by a recent research conducted in South Africa [22]. ...
Overconfidence is a common psychological condition defined as the irrational belief that one's chances of success are higher than they really are. The damage that overconfidence can do in the world of finance is even more glaring. Small and medium-sized investors lack the information collection, professional skills, and trend-following behaviour of large shareholders, firm management, and institutional investors. In China, the stock market is dominated by small and retail investors. They lack information and often make a decision based on the limited knowledge and information that they have. Still, owing to hubris, many small and medium-sized investors falsely assume that making money is simple or that they can consistently outperform the market as a whole. Small and medium-sized investors frequently trade to provide liquidity to the market, but their overconfidence often leads them to set unrealistically high-profit targets, incorrectly attribute gains to their operating skills, and fail to adequately account for losses as a result of events outside their control. Transaction costs can eat into earnings. Overconfidence among investors has been shown to increase market risk and volatility.
... A number of researchers then improved and broadened the scope of the study by incorporating both primary and secondary data, as well as a wide variety of tools, methods and more advanced levels of statistical analysis. This was done in an effort to validate the underlying framework and theory (Singh et al., 2016;Sharma and Nandi, 2018;Zahera and Bansal, 2019;Kappal and Rastogi, 2020;Abdullah and Naved Khan, 2021;Barber and Odean, 2001;Fischer and Lehner, 2021). The scope of the research was expanded to include looking into how investors think and how they do business. ...
... In the behavioural finance literature, the consensus view is that influence on investors makes for poor judgment and pricing in the practical field (Barber and Odean, 2001;Fischer and Lehner, 2021). The bounded rationality theory describes how individuals have limited rationality while making an investment decision; the limitation includes the cognitive Figure 11. ...
... Due to the illusion of control and illusion of knowledge, mistakes are made by investors. Barber and Odean (2001) found that males are more confident than females. To make a perfect investment decision, investors require skills, intellect or talent. ...
... Prior research on investment (Metawa et al, 2019;Barber & Odean, 2001;Meir et al., 2006) has mostly concentrated on developed markets in North America, Europe, or Africa, but Asian market-specific behavioral finance research is scarce (Abuova & Ra, 2018). By examining behavioral aspects of the Vietnamese market, this article aims to close that gap. ...
... According to Barber and Odean's (2001) analysis of the trading behaviors of different genders, male investors usually trade more than female investors, which leads to a dramatically reduced investment return as a result of excessive trading. Male and female investors who are single can more clearly see this variation in behavior. ...
Using behavioral factors (mood, overconfidence, underreaction, overreaction, and herding behavior) as proxy variables in the Vietnamese stock market, this article tries to explore the link between investor demographics (gender, age, experience, and educational ability) and their investment decisions. This study compiles information from a structured questionnaire survey of 400 local, international, institutional, and individual investors in Vietnam. It employed partial multiple regression to examine how investors' demographic variables affected their investment choices using behavioral traits as mediator variables. According to the results, investor emotion, overconfidence, over/underreaction, and herd behavior all have a large impact on investing decisions. Additionally, investors' investing selections are significantly and favorably influenced by their age, gender, and degree of education. Although experience does not have a significant effect on financial decisions, investors start to ignore emotional aspects as they become more experienced.
... As the cultural differences between investors' stock holding increase, investors trade with lower frequency (Beracha, Fedenia, & Skiba, 2014). Men trade more than females and are overconfident (Barber & Terrance, 2015). The total impact of all weather-related moods and calendar effects seems to influence trading (Kaustia & Rantapuska, 2015) significantly. ...
... All the previously mentioned personal characteristics of an investor, such as gender, age, occupation, annual income, and trading experience impact behavioral biases (Mushinada & Veluri, 2019). The preferences differed according to the demographic profiles of individual investors (Yasemin, 2018), amongst which overconfidence is the deadly bias in the Indian Context prone to males (Prosad, Kapoor, & Sengupta, 2015) as they are overconfident on the precision of their information and thereby expect gains of trading and they may even trade when the real expected net profits are negative (Barber & Terrance, 2015). In contrast, gender, age, and general education do not affect the level of overconfidence (Kansal & Seema, 2018). ...
A systematic review of literature has been conducted on investor’s trading behaviour, andscientific literature until the year 2020 has been reviewed. It comprises research articles, reviews, and research reports. Appropriate keywords have been used, and each chosen literature has been assessed for itsquality. Based on the quantitative and qualitative research, evidence has been made, and a multi-dimensional framework has been developed, which is the basis for further research.The review examinesthe factors influencing women investors trading in thestock market and the behavioural biases affecting women in due course of investment and trading.Findings from research evidence have been integrated through thematic synthesis. The findings broadly indicate that there is less participation by females trading inthe stock market, and the behavioural biases explored by past researchers have not explored on females alone. Hence, this study can be further used for analyzing thebehavioural biases inherent in women investors trading inthe stock market.
... Overconfidence confirms individual conduct and drives the person to defend his incorrect action to its logical conclusion (Odean, 1998b). Women are less confident than men, hence they invest less (Barber & Odean, 2001). Overconfident people underestimate their error margins (Shiller, 2005). ...
... There's a lot of research on behavioural finance and investment biases, but most studies employ secondary data to examine the impact (Barber & Odean, 2001;Chen et al., 2007). ...
Behavioral biases haven't gotten the attention they merit, especially in the Indian context. Despite the abundance of information on behavioural finance, only a few academic research has sought to examine behavioural biases across different demographic groups. This research tries to address this lacuna in the literature. The present research work aims to investigate and quantify the behavioural biases that influence individual investors' investment decisions. The primary data was collected through a structured questionnaire from five prominent cities in the most populated state of India, i.e., Uttar Pradesh. The data was collected from 487 individual investors with the help of their financial advisors and brokers. The empirical research work revealed that eight listed biases affect investment decisions by nearly 82%. The outcome as a formal bias assessment instrument was supported by exploratory factor analysis (EFA) encompassing eight behavioural biases measured via 47 statements. The present research contribution, provides a formal assessment tool and further helps the researchers to uncover behavioral biases and develop de-biasing strategies. Academicians, financial advisers, practitioners, and economic psychologists are invited to utilize the instrument in order to further confirm its efficacy.
... Even though the value of open information varies greatly, numerous shareholders are hesitant to pay for professional institutions for advice [103]. [104] asserts that Twitter users are more aware of news of all kinds, which decreases the cost of information collecting and raises SMP rates. ...
... Furthermore, SMP rates and propensity for online financial transactions are positively correlated, according to Fujiki et al. (2012) [111]. There is no doubt that SMP gains from lower costs and more options [103]. The common economic theory-based notion has been that web users are more inclined to become investors. ...
Purpose: The most pertinent source for generating wealth is to invest in stock market, however numerous studies have proved that there is low stock market participation. Hence, the extensive review of existing literatures on stock market involvement has been conducted to identify the various factors influencing stock market participation and also to identify the gap in this body of research. Approach: The current study is conducted with thorough analysis of the body of literature from numerous search engines, including Google Scholar, Scopus, Research Gate, etc. these gathered data on financial literacy, stock market participation, social inclusion and digital inclusion includes journal articles, working paper, reports, magazines, books and websites etc. In order to search the pertinent information for the study many keywords were used. Literatures were then divided into conceptual review, hypothetical relationship review, and theoretical review. Results/ Findings: Numerous studies have exposed that financial literacy and social inclusion significantly contribute to stock market participation, and also digitization promotes individuals involvement in the financial market. The extensive review directed a researcher towards low touched area under stock market participation i.e. to determine how literacy level on financial aspects and social inclusion will improve one’s involvement in the stock market, when it is mediated through digital inclusion. Originality/Value: This study will provide policy guidelines to Government, financial policy makers, practitioners and academician in the area of finance to encourage stock market participation by highlighting the sustainable inclusive growth through socialization and digitalization in order to generate wealth which again contributes to economic development of a country. Type of Paper: Literature Review
... Bekar bireylerin evlilere göre daha yüksek finansal risk algısına sahip olduğu görülmektedir (Hallahan ve diğerleri, 2004). Bekar bireylerin, evliler kadar finansal sorumlulukları olmaması nedeniyle finansal riske karşı bekarların evlilere göre daha toleranslı oldukları tespit edilmiştir (Barber ve Odean, 2001;Fan ve Xiao, 2005;Yao, Hanna ve Lindamood, 2004). Ailesine ve bakmakla yükümlü oldukları kişilere karşı var olan sosyal ve finansal sorumluluklar, evli bireylerin sahip olduğu düşük finansal risk toleransının nedeni olabilir. ...
... Genel olarak bekarların risk seviyesinin yüksek olması literatürdeki genel eğilimle uyumludur. Literatürdeki çalışmaların büyük çoğunluğu bekar bireylerin evlilere göre risk alma eğilimlerinin daha yüksek olduğunu ifade etmektedir (Barber ve Odean, 2001;Fan ve Xiao, 2005;Yao ve diğerleri, 2004). ...
Bankacılık sektörünün rekabet yoğun bir sektör olması, farklı kesimlere ulaşmak için risk yapıları çeşitlendirilmiş en uygun yenilikçi ürünlerin müşterilere sunulmasını gerekli kılmaktadır. Yenilikçi finansal ürünler oluşturulurken dikkate alınması gereken önemli faktörlerden biri banka müşterilerinin genel risk alma düzeyi ve finansal risk toleransıdır. Bu çalışmanın amacı Türkiye’deki konvansiyonel banka müşterileri ile katılım bankası müşterilerinin finansal risk toleranslarının ve genel risk algılarının yapısını incelemektir. Bu amaçla her iki tür banka müşterilerinin cinsiyet, yaş, eğitim düzeyi ve medeni durum bilgileri kullanılarak demografik değişkenlerin risk algısı ve finansal risk toleransı üzerindeki etkisi incelenmiştir. Çalışmanın verileri 2019 yılında gerçekleştirilen Türkiye Hanehalkı Finansal Algı ve Tutum Araştırmasına katılan 1718 katılımcıdan elde edilmiştir. Çalışma kapsamında ele alınan değişkenler arasındaki ilişkilerin belirlenmesi için grup ortalamalarının karşılaştırılmasına imkân veren t-testi ve ANOVA kullanılmıştır. Literatürdeki çalışmalar örneklemlerinin daha geniş tutulması ve sadece banka müşterileri ile sınırlandırılmaması çalışmamızı özgün kılmaktadır. Vadeli mevduat hesabı ya da kâr payı hesabı olan müşterilerin genel risk algısının ve finansal risk toleransının cinsiyet hariç incelenen tüm demografik değişkenlere göre farklılaştığı tespit edilmiştir. Ayrıca demografik değişkenlerin risk üzerindeki var olan etkisinin her iki banka müşterileri için benzer şekilde gerçekleştiği görülmüştür.
... This suddenly shows itself, including trading behavior. Barber and Odean (2001) contemplated the trading transactions of investors with markdown brokerage accounts. They discovered that the more individuals exchanged, the more regrettable they did, on a normal. ...
Investors are rational, and they consider all accessible data in the portfolio investment choice process because of the fundamental assumption for the Efficient Market Hypothesis (EMH). Throughout the long term, the analysts have tested this assumption and that they guarantee that investors cannot be rational since mental and cognitive blunders impact their decisions. The work done by the various researchers under this domain came about inside the improvement of a spic and span part of financial aspects, alluded to as Behavioral Finance. Behavioral finance considers what the different mental factors mean for how investors settle on making their investment. The literature review deduced that the subject of behavioral finance attempts to clarify the gap between expected behavior (Rational Behavior) and real behavior (Normal behavior). There is no bound together behavioral finance hypothesis that offers a right spot to the factors affecting investors' financial decisions. This paper deals with various concepts related to behavioral finance.
... Overconfidence is a well-known and common bias which makes people too confident about their wisdom and skills, and neglect the risk associated with investment. Overconfidence has been related to trading volume according to Gervais and Odean (2001), Barber andOdean (2000,2001) and Statman et al. (2006). It can be also understood as, the investor's propensity to overestimate the accuracy of their own estimation abilities, in the sense that they rely on their own private signals and avoid public signals (Daniel K, Hirshleifer D and Subrahmanyam A, 1839-1886, 1998). ...
... Women are much more loss averse than men, making them susceptible to reduced loss sales compared to men, thus, making gender a vital factor, with women exhibiting a stronger disposition effect. However, according to Barber and Odean (2001), men are overconfident, overtrade and reluctant to accept mistakes, earning inferior returns than women. So if women are more likely to accept the mistake, they will likely book losses early. ...
Purpose
The disposition effect remains one of the most significant investor behavior puzzles. This study aims to consolidate the knowledge, explore current dynamics, elicit trends and offer future research directions to demystify the disposition effect.
Design/methodology/approach
This study applies the hybrid review method. It first used bibliometric analysis (212 documents), followed by content analysis (54 articles) to analyze the breadth and depth of literature on the disposition effect.
Findings
This study presents performance analysis and science mapping. It identifies five main research streams: evidence, implications and mitigation techniques; theoretical explanations; investor biases and hedonic framing; attributes, beliefs and preferences; and implications for asset pricing and market efficiency. This study further offers future research directions for disposition effect research.
Research limitations/implications
This study deploys sequential bibliometric and content analysis. A meta-analysis of quantitative articles could provide specific insights regarding the disposition effect. Besides, this study is based on Scopus-indexed journals only.
Practical implications
This study benefits investors and portfolio managers as they learn effective ways to guard against the disposition effect. Policymakers may tweak tax laws to incentivize long-term holding, and regulators can run investor education campaigns to minimize the disposition effect’s consequences effectively.
Originality/value
To the best of the authors’ knowledge, this is probably the first hybrid review of high-quality, contemporary articles on the disposition effect that offers science mapping, research streams, future research directions and a succinct summary of theories, contexts, characteristics and methods deployed in the field of research.
... The third strand of literature deals with overconfidence and its effect on financial behaviors. On the one hand, overconfidence has long been found to affect various investment decisions in the finance literature (Barber and Odean 2001;Grinblatt and Keloharju 2009;Malmendier and Tate 2005). For instance, Odean (2000, 2001) find that overconfident investors trade excessively and end up with lower returns. ...
Though ample empirical evidence demonstrates the relationship between objective financial literacy and retirement planning, we have a limited understanding of the role of individuals’ subjective financial literacy in their retirement planning. In this study, we examine how individuals’ financial literacy confidence bias affects their retirement planning behaviors using survey data in China. Based on the difference between respondents’ subjective and objective financial literacy from survey data, we construct measures of individuals’ financial literacy overconfidence and underconfidence for empirical analysis. Our results document the critical role of individuals’ assessment of financial literacy in their retirement planning. We find that individuals’ financial literacy overconfidence (underconfidence) significantly promotes (demotes) their retirement planning behaviors.
... Dalton et al suggest that large board size may have a positive impact on firm performance. [28,29] In China the effect of board size on leverage is positive but the coefficient is approximately zero. This result may be based on the fact that the development of corporate governance in China is still immature. ...
... Furthermore, the existing body of knowledge suggests that females on board increase the board's ethical behavior Sundén & Surette, 1998;Bruns & Merchant, 1990), decreases the probability of share price crashes (Qayyum et al., 2020), and have a risk aversion attitude (Barber & Odean, 2001;Byrnes, Miller, & Schafer, 1999). It does not mean that only females are vital to mitigating the governance issues, but men are also very vital to strengthening the corporate governance. ...
Drawing upon signaling theory we investigate the impact of holding firm risk spread on foreign subsidiary's TMT gender diversity. Signaling theory conceptualizes that TMT gender diversity is a legitimacy-seeking strategy. The sample consists of Chinese 123 foreign subsidiaries from 19 countries from 2010 to 2019. Using System GMM estimation technique to investigate the impact of holding firm’s risk spread on foreign subsidiaries TMT gender diversity. The study results suggest that the holding firm’s risk spread has a positive and significant impact on foreign subsidiary TMT gender diversity. Thus, against higher holding firms’ risk, the foreign subsidiaries use the TMT gender diversity strategy to transmit signals to get legitimacy and buffer the spread effect. Based upon our study results the international business policymakers are suggested to use corporate governance strategies against holding firms’ risk spread to get legitimacy in the market.
... These skills make them more effective in the functioning of the board and other allied activities (Sabatier 2015). Concerning monetary gamble inclinations, risk averseness and carelessness among the two genders, psychology literature provides evidence that women are less presumptuous and more gamble unwilling than men (Barber and Odean 2001;Brooks and Zank 2005). Furthermore, given the risk averseness possessed by women directors, these directors can often request more audit testing by external auditors (Mnif Sellami and Cherif 2020). ...
A sound corporate governance (CG) system in the mining sector ought to promote resource utilization while adhering to the principles of accountability and responsibility. In this case, it is curious that so little attention has been paid to understand the CG structures and practices of the mining industry. Therefore, this paper aims to unearth the CG practices of Indian mining through a uniform and structured CG Index. The paper develops a CG index to measure the CG performance across a range of CG structures. The data for this study was extracted from 2012–2013 to 2020–2021 for 11 mining companies in India. The sample companies constitute 78.23% of the total market cap of NSE 500 metal and mining companies. T-test was conducted to test the differences between the CG characteristics of the sample companies on various levels. This study highlights the CG practices within the mining industry of India. The findings of this study can come handy to assess the CG performance of mining companies in not just emerging economies but for the developed ones too. This study lays the foundation for future studies around CG practices, given its role in sustainable development.
... The presence of self-serving attribution bias, which refers to individuals taking credit for positive results while blaming circumstances or other people for bad outcomes, is one of the primary mechanisms by which people become overconfident (Barber andOdean 2002, Billett andQian 2008). An example for this particular phenomena could be, a manager attributing the higher progress of the firm to his own intelligence and hard work, and citing unfair circumstances when the firm achieve lower growth. ...
The current research aims to analyze the impact of financial literacy on investment decisions in Pakistan with mediating role of behavioural biases (self-attribution, illusion of control, and hindsight). The secondary data is collected from 217 investors using self-administered questionnaires. Descriptive and inferential statistics identified that financial literacy has a substantial and positive influence on investment decisions, but has a negative effect on behavioural biases (self-attribution, illusion of control, and Hindsight). Furthermore, the illusion of control bias and hindsight bias partially mediates the relationship between financial literacy and investment decisions, whereas the results of mediation for self-attribution bias were insignificant. The current research is beneficial for the investors as they will be able to recognize the relevance of financial literacy and the biases that impeded their decision-making, as well as create alternative ways to overcome these biases and minimize irrational behaviour.
... Hence, investors should push companies to get rated and to act thoroughly and swiftly when contacted by rating providers. Barber/Odean (2000, 2001, Polkovnichenko (2005), and Goetzmann/Kumar (2008) show that many investors (most probably not only ESG investors) are under-diversified and suffer from associated idiosyncratic risks. If investors are not willing to minimize their exposure to idiosyncratic risk by buying index funds (Oehler/Wanger, 2020) 24 , they may have a better investment performance by investing in stocks of companies with high ESG ratings. ...
This study analyzes whether stocks of companies with environmental social governance (ESG) rating show lower idiosyncratic risk. The main analysis covers 898,757 company-month observations of US stocks in the period from 1991 to 2018 and controls for stocks' exposure to liquidity, mispricing, innovations in volatility risk, investor sentiment, and analysts' forecast divergence. The main finding is that the receipt of an ESG rating decreases idiosyncratic stock risk. The effect is stronger for stocks that receive a higher ESG rating. Nevertheless, even when companies receive a lower ESG rating, they show significantly lower idiosyncratic risk than stocks without an ESG rating. Furthermore, stocks subject to a negative screen show lower idiosyncratic risk during recessions than comparable stocks with an ESG rating but without a negative screen. The results support the notion that the receipt of an ESG rating decreases uncertainty regarding future stock risk and return and show that ESG ratings and negative screens individually influence stock risk and, therefore, should be considered separately.
... The literature offers several explanations for the speculative and unprofitable trading behavior of individual investors. Active investors can be overconfident (Barber and Odean 2001), which means that they overestimate the accuracy of their financial information. Investors can also learn how to invest through their trading strategies (Seru et al. 2009). ...
During the COVID-19 pandemic, many new individual investors globally entered the stock markets, often pursuing speculative investment strategies that resemble gambling. A concern is that trading as a form of gambling can become addictive for some people, as documented by several recent studies in developed markets. We contribute to this literature by adding new evidence from a large emerging market, Thailand, where most forms of traditional gambling are illegal. We field a diagnostic checklist from the American Psychiatric Association for compulsive gambling, changing the content of each item to refer to stock market trading instead of gambling. In a survey of 285 Thai investors, we document that 9.5% are potential problem gamblers, while 4.9% meet the stricter criteria for addiction. The trading addiction score explains speculative trading behavior such as frequent trading, day trading and buying high-risk “lottery” stocks, beyond common factors such as overconfidence and high risk-tolerance. Further, the trading addiction score is positively related to high levels of stress and alcohol use, problems often associated with gambling disorders. Our results raise awareness about investors whose objectives are more related to gambling than long-term investment, and the associated problems when such behavior becomes compulsive.
... In line with this argument, a study of engineers showed that men perceived higher social costs of seeking out women for discussion compared with their male counterparts (Poleacovschi et al., 2021). In another strand of reasoning, men have been shown to be overconfident in their knowledge in a number of realms, including financial investments (Barber & Odean, 2001;Mishra & Metilida, 2015) and classroom knowledge; Lundeberg et al., 1994). Thus, gender differences in outgoing discussion ties may be driven, in part, by men's overconfidence in their knowledge of workplace situations. ...
We explore the influence of gender and formal organizational status on the formation of discussion ties. Network data, gathered through surveying employees from a municipal organization in the United States, garnered a 92% response rate ( n = 143). Results of exponential random graph modeling indicate women supervisors are more likely to send discussion ties, while women in general are more likely to receive discussion ties. These exploratory results suggest women may be perceived as more approachable for work discussions, but not as supervisors. Finally, the results identified a consistent homophily effect of gender in the discussion network.
... In line with previous findings in the literature, we anticipate that the influence of board gender diversity on the decision to acquire FinTech can be mixed, both positive and negative. Women can be less risk-taking (Byrnes et al. 1999;Barber and Odean 2001) and less overconfident (Knight 2002) than men, and thus a female-predominant board may be slower to innovate via FinTech acquisition. Levi et al. (2014) and Chen et al. (2016) also document that a higher female board representation significantly reduces the likelihood to acquire. ...
This paper investigates ex-ante factors influencing international bank acquisition of FinTech companies from 2010–2018. Using hand-collected data, we show that bank boards with a larger female presence as well as those that have CEOs with longer tenure are more likely to pursue FinTech acquisitions. The financial performance also matters as banks with greater capital strength and liquidity are more likely to be acquirers. In line with prior expectations, banks with higher IT spending, suggesting greater in-house development of digital solutions, are less likely to target FinTech acquisitions. In addition, younger CEOs and banks with lower IT spending are also found to be more likely to make multiple FinTech acquisitions. The nationality diversity in the boardroom matters for cross-border bank-FinTech deals.
... Gender influences the decision-making process in the financial services industry (Atkinson, Baird and Frye, 2003;Fang and Wang, 2015;Bacha and Azouzi, 2019;Ke, 2021). Male CEOs tend to be more overconfident compared to their female peers (Barber and Odean, 2001;Galema, Lensink and Mersland, 2012;Hartarska, Nadolnyak and Mersland, 2014). Our regression model includes a dummy variable, GENDER, taking the value of 1 if a CEO is male and zero otherwise. ...
This paper extends the Fang and Wang (2015) multitier framework to examine how Chief Executive Officers' (CEOs) characteristics determine Microfinance Institutions' performance in Africa. The framework presented is decomposed into three tiers of performance components: financial performance, outreach and sustainability. Our key hypothesis is that varying CEOs' characteristics take distinct channels in influencing MFIs' financial performance, outreach and sustainability. As such we expect to find superior performance from CEOs who are more experienced, have an advanced degree or professional qualification and possibly identify as polyglots compared to their peers.
... Perception risk varies with gender differences and is likely to affect their self-perception (Brighetti and Lucarelli 2015). Due to the calculated risk taken by the women, Barber and Odean (2001) pointed out that women generally look for information and truthfulness to suppress the risk. Marital status is moderating the relationship between credibility and investment intention (female: t = 2.31, male: t = 1.273; p < 0.005); truthful and perceived risk (female: t = 1.062, male: t = 0.617; p < 0.00); truthful and investment intention (female: t = 3.252, male: t = 2.415; p < 0.05). ...
The financial service sector involves high-risk and uncertain elements that make financial decision-making challenging; thus, information sources act as facilitators. The present study analyzed the effects of financial advertisements on investors’ behavioral intentions with perceived risk acting as a mediator and gender and marital status as moderating variables. The study empirically validates the proposed conceptual model (based on Stimulus–Organism–Response) with the interrelationship between financial advertisement antecedents, perceived risk, and investors’ investment intentions. Data were collected from 481 respondents using the survey method and analyzed using the partial least squares structural equation modeling (PLS-SEM). “Multigroup analysis (MGA)” was conducted to identify the gender and marital status intergroup moderating effects. The study confirms the significant relationship between informativeness and truthfulness with the perceived risk. The result found that credibility and truthfulness are significantly related to investor intention. In addition, the mediating effect of the perceived risk was found to be absent. Gender is moderating the relationship between credibility and investment intentions; informativeness and perceived risk; truthfulness and perceived risk, whereas marital status moderates the relationship between credibility and investment intentions; involvement and perceived risk; and truthfulness and perceived risk. The present study helps to understand millennial investment decision-making when they are exposed to various financial promotions and advertisements. This study provides insights to the government in policy framing regarding the financial advertisements essentials and disclosures that need to be focused on.
... The data also demonstrate that financial literacy has a negative link with behavioural biases and herding biases, positive relation with mental accounting bias, but no significant relation with overconfidence and emotional biases. Regarding gender, men are more overconfident than females regarding their expertise in the stock market (Barber & Odean, 2001). Mettawa et al. (2019) studied that investor emotion, overreaction and under reaction, overconfidence, and herd behaviour greatly impact investing choices. ...
The emergence of the financial market favorably influences the economy. The choices of an individual engaging in the financial market have a crucial part in setting the market trend, which subsequently affects the economy. This research seeks to examine the variables impacting the investment choices of people functioning in financial and non-financial sectors. The research employs a social survey design, based on 280 samples obtained by a structured questionnaire employing a convenience sampling approach. The study was restricted to the Pokhara metropolitan city of Nepal. Descriptive Statistics, Chi-square test, t-test, ANOVAs, Confirmatory Factor Analysis and Structural Equation Modeling were utilized to fulfill the study goals. The study demonstrates that there is no substantial difference between personnel working in the financial and non-finance industries on herding, market, heuristic and demographic component. However, people working in the financial industry examine more economic aspects and the total investment performance is greater for employees working in the financial sector. Further, the research reveals that self-confidence, market information, the recommendation of professionals, minimization through portfolio diversification and high-income level increases in interest in investment were the significant influential factors affecting investment decisions of an employee working in financial and non-financial institutions. The CFA establishes a significant link between observable variables and their fundamental constructs. The path analysis demonstrates that Market, Herding, Knowledge and Economic factors has a favorable influence on investment choices. The regulatory authority and related institutions should equip investors in respect of both economic and behavioral elements to make a smart investment choice.
... E-Vahdati et al., 2018;E-Vahdati et al., 2019;Oradi and Izadi, 2019;Zalata et al., 2019). Mostly, men are overconfident, trading stocks more than women, and are more likely to break the rules to achieve economic benefits (Barber and Odean, 2001). Correspondingly, women make more conservative decisions and are less tolerant of opportunistic behavior than men (Krishnan and Parsons, 2008). ...
Purpose
This study examines the association between chief executive officer (CEO) gender and the readability of annual reports by considering some demographic attributes of female CEOs.
Design/methodology/approach
Ordinary least squares (OLS) regression is used to test the research hypotheses on a sample of S&P 500 firms between 2004 and 2016.
Findings
The results show that female CEOs are significantly positively associated with the readability of 10-K reports – in line with ethical-sensitivity theory. Further results show that this association is variable depending on the demographic attributes of female CEOs – in line with upper echelon theory. Specifically, older female CEOs and those with financial expertise are significantly associated with more readable 10-K reports. In contrast, female CEOs hired from within the firm are negatively associated with the readability of 10-K.
Research limitations/implications
This study provides evidence on the effect of female CEOs and their demographic attributes on annual report readability, which was not addressed in prior research.
Practical implications
The findings show that the appointment of female CEOs seems like a helpful avenue to reduce concerns among the regulators about the textual complexity of annual reports. However, the most important policy implication of the study is that the decision to appoint female CEOs should be based more on their demographic attributes than on gender equality recommendations and full trust in women's behavioral consequences.
Originality/value
This study contributes to the academic literature on readability and gender. Prior research has not clarified which attributes and skills of female CEOs drive their abilities to improve shareholder value and make more ethical decisions. This study suggests that female CEOs are not better “ per se ” to improve corporate governance practices, and the impacts of female CEOs are not the same and differ according to their demographic attributes.
... In the economic field several studies indicate that men are more willing to take risks and have a higher level of self-confidence than women (23,24). We can only speculate whether these attributes also apply to the medical field (i.e., THA surgery). ...
Background and purpose — The sex of the surgeon has been proposed to be associated with a disparity in clinical outcomes after different surgical procedures. We investigated the association between surgeon–patient sex discordance and adverse events (AEs) and surgical AEs (SAEs) within 90 days after primary total hip arthroplasty (THA). We also investigated patient-reported satisfaction with surgical outcomes 1 year after the surgery. Patients and methods — We conducted a registerbased cohort study including primary THAs performed due to osteoarthritis between 2008 and 2016 at 10 publicly managed hospitals in western Sweden. Hospital data was linked to the Swedish Arthroplasty Register and a regional patient register. Logistic regression models investigated discordant sex of patients and surgeons on AEs/SAEs and patientreported satisfaction with the surgical outcome. Results — 11,993 primary THAs were included in the
study. The proportion of AEs for the concordant group was 7.3% and for the discordant group 6.1%. For SAEs, the proportion was 5.0% for the concordant group and 4.3% for the discordant group. After adjustment the discordant group still had a lower likelihood of an AE or SAE than the concordant group: adjusted odds ratio (aOR) for AE (0.82, 95%CI 0.71–0.95) and for SAE (0.86, CI 0.72–0.99). No association was detected between patient-reported satisfaction and sex discordance. Conclusion — Sex discordance between surgeons and patients is linked to a decreased risk of an AE but not a lower level of patient-reported satisfaction with the surgical outcom
... Namely, Black women likely have a lower value of assets to manage when compared to other groups. Research has shown that more self-confident individuals are less likely to seek financial advice (Kramer, 2016), and this trait is attributed to men more than women (Barber & Odean, 2001). At the same time, formal education is positively correlated with financial planner use (Elmerick et al., 2002). ...
... In terms of gender, there are big differences in the way of doing things between men and women due to many factors. Under normal circumstances, men are more inclined to be tough, confident, decisive, and thrill-seeking, and are more tolerant of risks, so they are more prone to aggressive tax avoidance decisions [1]. Compared with men, women tend to be stable, moderate, and conservative, and have a shallower acceptance of risks [2]. ...
... Partindo dessa compreensão, estudos anteriores demonstraram haver relação entre vieses comportamentais e os resultados da tomada de decisão financeira (Tversky & Kahneman (1974), Kahneman & Tversky (1979), Shefrin & Thaler (1988), Thaler (1990), Barber & Odean (2000), Barber & Odean (2001), Barberis & Thaler (2003), Pompian (2006), Stango & Zinman (2009) Os pesquisadores Kahneman e Tversky (1979), ao desenvolverem a Teoria dos Prospectos (Prospect Theory) observaram que os indivíduos eram influenciados por fatores que envolviam suas emoções e sentimentos na hora de tomar decisões, sobretudo àquelas mais arriscadas, que resultavam em decisões que nem sempre seriam as mais coerentes e livres de erros. Sendo assim, os referidos autores demonstraram que o ser humano tende a adotar decisões distintas quando expostos a diferentes formulações de um mesmo problema. ...
A presente pesquisa buscou identificar se fatores como idade, nível de Formação Acadêmica e Religiosidade poderiam influenciar o comportamento das pessoas no tocante à tomada de decisão em situações que há a exposição ao risco financeiro. O estudo tem como alicerce teórico a teoria dos prospectos, proposta pelos estudiosos Kahneman e Tversky (1979) e busca perceber a influência do efeito framing no processo de decisão. A amostra contou com observações de todas as regiões políticas do país e teve a participação de 423 estudantes distribuídos entre os cursos de graduação em Administração, Ciências Contábeis e Economia. Como instrumento de coleta de dados, um questionário foi aplicado aos estudantes buscando conhecer o perfil desses respondentes, além de submetê-los à questões-problemas com intuito de avaliar se seus comportamentos seriam afetados com a presença do risco financeiro em seus investimentos. Com base nas respostas enviadas pelos respondentes e fazendo uso de regressões Logit, os resultados demonstram que a variável idade não apresentou, em nenhum dos cenários construídos, significância estatística para explicar a racionalidade (ou a falta dela) das escolhas. Os resultados também sugerem que não há precisão na afirmação de que a Formação Acadêmica possa ser considerada um driver mitigador do efeito framing. Por fim, os resultados apontam que apenas a Religiosidade, dentre os fatores aqui analisados, pode influenciar de maneira significativamente estatística o comportamento dos respondentes sendo considerada um driver mitigador dos efeitos da teoria dos prospectos, inclusive do seu efeito framing.
... Hu, Yu, and Wang (2012) document that female managers outperform male managers in both cost control and risk management. Women are more risk-averse than men in financial decision-making (Barber and Odean, 2001). However, not all literature finds significant differences between female and male fund managers. ...
Numerous studies investigate the relationships between fund manager characteristics and fund performance. However, most evaluate fund performance by using traditional factor alphas, such as the Fama-French-Carhart four-and six-factor alphas. In the present study, we analyze data from Taiwanese equity mutual funds from January 2009 to December 2018 and reevaluate the relationships between fund manager characteristics (namely gender, education level, and tenure) and fund performance by using a recently proposed performance measure: the double-adjusted alpha. Double-adjusted alphas reflect fund manager skill more accurately than do the traditional four-or six-factor alphas because they control for returns attributable to fund holding characteristics. In contrast to the fact that team management has become the dominant management structure in the U.S. recently, domestic mutual funds in Taiwan are all managed by solo managers, and one manager can manage more than one fund. This solitary working environment in Taiwan's domestic fund industry motivates us to reexamine the relationship between fund performance and characteristics of these solitary managers at the manager level but through using the recently developed double-adjusted alpha method.
Our results indicate that female fund managers tend to achieve higher double-adjusted alphas than do male competitors, with the difference remaining significant over the 1, 6, and 12 months following the initial ranking month. Managers' education level and tenure do not have any statistically significant effect on either the double-adjusted four-or six-factor alpha values. However, using the traditional factor alpha measures would lead to different and misleading results. In contrast to the current literature, our findings provide new insights into the relationships between fund manager characteristics and fund performance.
The paper deals with the application of aspects of behavioral finance in the context of investor protection reflected in EU financial regulation which puts an emphasis on disclosure requirements. Traditionally, financial regulatory frameworks maintain a status que assumption of “rational investors” contained within neoclassical economic theory, however reoccurring financial incidents have exposed a critical flaw in this understanding, consequently requiring a further examination of behavioral aspects within the context of financial regulation. It remains ambiguous how regulators may best use findings from behavioral finance to address flaws in their investor protection tools. Furthermore, neither expanding disclosure obligations nor enforcing a tougher paternalistic approach may suffice in their intent.
This research metaphorizes the leadership style and characteristics of Tribhuwana Tunggadewi Jayawisnuwardhani that should exist in women when they become CEO. The analysis method is literature studies for obtaining data about Tribhuwana Tunggadewi Jayawisnuwardhani and female CEOs from various sources such as books, websites, journals. The results show that Tribhuwana Tunggadewi Jayawisnuwardhani has transformational leadership style that is very suitable when applied by women when leading. The leadership style combines feminism and masculine. On the feminism side, namely providing support for subordinates to optimize their potential, while on the masculine side, female CEOs can act decisively and wisely.
Overconfidence is a bias that may be effective in individuals' and corporates' financial decisions. The section has examined overconfidence in corporate aspects, as its conceptualized "managerial overconfidence". The study sample is Borsa İstanbul (BIST) Chemical, Petroleum and Plastics Index companies, 2005-2021 period yearly data and analysed by panel data regression method. It has been determined that managerial overconfidence positively affects the ROA and debt ratio of companies. (The language of the study is Turkish.)
We investigate the effects of using different sources of investment leverage, that is, securities with embedded leverage and traditional margin accounts, on the portfolio performance of retail investors, recognizing that these effects may be conditional on investor attention. We find that investors who trade on margin underperform those who do not have margin accounts; we also find that investors trading securities with embedded leverage show even poorer performance than investors trading on margin. The negative effect of leverage usage, however, decreases with greater investor attention, measured by portfolio monitoring frequency. Results suggest that more attentive investors gain more from using investment leverage.
The paper presents the author's approach to the modelling the system of the pro-spective risk-taking behavior of Russian students’ youth based on their prefer-ences regarding the types of savings. The research is based on empirical data ob-tained through a survey of students of the largest universities in the south of Rus-sia according to the questionnaire developed by the authors. Young people enter-ing the labor market in the near future will be the most financially active part of the population. The study involves a joint analysis of the features that form dif-ferent types of students’ financial behavior according to the risk level of invest-ments chosen. We model the risk attitude system using the multinomial logit model, with socio-economic and demographic characteristics of students and their families along with students’ financial literacy as determinants. Our risk attitude system model shows that more likely to demonstrate a higher risk appetite are: students from wealthy families, young men enrolled in humanitarian and public programs, and respondents living with their families. Also we revealed that most students tend to choose low-risk investment options.
Investment decisions have great importance in different sectors of various countries and these decisions are the basis on which the outcomes of the investments are based. However, there might be certain factors that might lead to the incorrect long term and short term investment decisions. In this regard, the current study has been conducted with the core motive to explore the impact casted by the environment and potential factors i.e. salience and overconfidence on the long term investment decisions for accommodation business along with the moderation of a variable i.e. financial literacy. To fulfill this objective, the researcher has collected data from the investors of accommodation businesses in Thailand. The collected data has been subjected to different statistical techniques and tools for analysis purpose and the results have been obtained. The results obtained by the analysis of the collected data indicate that salience and overconfidence have significant impact on the long term investment decision. In addition, the moderating role of financial literacy has also been found as significant in the study. The results suggest that the investors of the accommodation business must consider the aspects of salience and overconfidence before taking any long term investment decision to avoid failure of the investment decision.
Considering the social psychological, social cognitive, and economic factors, this paper aims to examine how gender equality can be bridged in the workplace through the empowerment of women workers’ ability to craft and narrate personal branding and self-confidence to gain better condition in the workplace. A total of 200 questionnaires were distributed to 200-woman employees working in 10 manufacturing industries in 5 regions in West Java, Indonesia. The independent variable of the personal branding scale is adopted from Peter and Montoya, the self-confidence scale is that of Frendika, and the dependent variable scale of gender equality is taken from McKinsey Global Institute's (MGI's) Power of Parity. A five point-Likert rating scale (1=lowest – 5=highest) is applied for each item, and SPSS v 25 was applied to analyze the data collected using AMOS v 25. The result shows that personal branding which includes relevance, consistency, and visibility has a positive and significantly more dominant effect than self-confidence to bridge gender equality in the workplace.
Background:
Gender inequality continues to reproduce itself in hidden and ambivalent forms and leads to invisible barriers in women's careers and lives. The authors were interested in how social perceptions of gender differences would relate to the maintenance of gender inequality in various spheres of life.
Objective:
The purpose of the presented research was to study social perceptions of gender differences in relation to the subjective significance of the gender inequality issue.
Design:
The study was conducted via an online survey throughout February-September of 2019. The sample included 106 people aged 18 to 68 (M = 30.2, σ = 10.5), 49% of respondents were women. The authors have developed and tested a questionnaire assessing the adherence to ideas regarding evident gender differences in various spheres of life. The reliability of all scales of the questionnaire has been tested. Respondents also completed a questionnaire identifying their perceptions of gender inequality and shared their life experience with respect to this phenomenon in the form of free description.
Results:
The following two latent factors reflecting different aspects of gender perceptions have been identified: "Career Inequality" and "Differences in Social Spheres". Indicators of the subjective significance of gender inequality (which include gender awareness, frequency of gender inequality witnessing, personal experience of gender discrimination and the emotional significance of this experience) were positively correlated with perceptions of career inequalities (these support ideas regarding gender differences when it comes to opportunities for professional realization) and negatively correlated with perceptions of differences within social spheres (these support ideas regarding the existence of essential gender differences within the family, politics and everyday life).
Conclusion:
Articulation of personal experiences of gender inequality is associated with social perceptions of the absence of essential gender differences in various social domains (egalitarianism) and sensitivity to gender inequality with regards to career opportunities.
We investigate board gender diversity and acquisition performance. Greater gender diversity promotes value‐enhancing acquisitions. Utilizing an external shock to board composition, we determine whether and why an increase in female directors adds value. Female directors have unique characteristics relative to their male counterparts that contribute to their ability to add value during the merger and acquisition process. The positive market reaction following an acquisition is rationalized by better deal terms, monitoring around the acquisition, and post‐merger performance. The extensive professional networks and unique backgrounds female directors possess are the underlying mechanisms contributing to acquisition decisions' success. This article is protected by copyright. All rights reserved
Abstrak Penelitian ini bertujuan untuk mengetahui pengaruh bias perilaku keuangan Anchoring bias dan Loss aversion yang dimiliki oleh investor yang ada di MNC Trade Kota kendari. Penelitian ini menggunakan 59 responden investor aktif yang diambil dari lembaga sekuritas yang ada di MNC Trade Kendari. Teknik pengumpulan data menggunakan kuisioner yang kemudian dianalisis menggunakan alat analisis regresi linear berganda. Berdasarkan hasil penelitian ini, terdapat pengaruh Anchoring bias dan Loss aversion terhadap pengambilan keputusan investor di MNC Trade Kota Kendari. Secara terpisah, perilaku Anchoring bias tidak berpengaruh signifikan terhadap pengambilan keputusan investasi. Hal ini di sebabkan oleh investor lebih fokus pada pengetahuan dan informasi atas saham secara teknikal, sedangkan perilaku Loss aversion berpengaruh signifikan terhadap pengambilan keputusan investasi investor di MNC Trade Kota Kendari karena investor lebih cenderung dipengaruhi oleh sikap risk averse dalam melakukan pengambilan keputusan.
This study asks whether new CEOs care about innovation post‐turnover. Using a large sample of Chinese listed firms between 2008 and 2019, our identification strategy relies on the exogenous variation in CEO turnovers. Our difference‐in‐difference estimates indicate that new CEOs improve R&D efficiency and generate more and higher quality patents. We further show that this positive effect is more pronounced when CEOs have longer career horizons and overseas experience. Overall, our findings indicate that CEO turnover represents an effective mechanism for fostering innovation and new CEOs indeed care about innovation. Our results could benefit several groups of stakeholders with respect to CEO selection process. This article is protected by copyright. All rights reserved.
In present era, behavioural finance plays an essential part in investment decision making. In
today's world, investors make a range of decisions. When making investment selections,
investors have several options or choices accessible to them in this market. Decision making
refers towards the ultimate selection of the finest alternative offered to investors in the market.
Some financial decisions are simple, while others are difficult and necessitate a number of
complex approaches. Behavioural finance investigates all psychological characteristics of
decision-making in finance and explains the investor regarding investment decisions. Typically,
the behaviour of an investor diverges from conducting logical and reasonable judgments and is
affected by a variety of behavioural biases. Its Indian financial system fosters investor savings
and channels those even their most efficient and productive use. As a result, this research
analyses the effect of behavioural biases in investment decisions as well as their impact on
financial risk tolerance. In the current study which is related to the study of the influence of
behavioural biases on investors financial risk tolerance and their decision making, the
quantitative research approach is used collect the facts related to behavioural biases and its
impact on financial risk tolerance of investors and their decision making. The study uses
statistical software packages SmartPLS 2.0 and IBM SPSS 20 to analyze and validate the
conceptual framework. Confirmatory Factor Analysis (CFA) and Structural Equation Modeling
(SEM) were used to evaluate the model with a sample size of 600 investors in India. The study
makes a threefold contribution. First, it measures the extent of behavioural biases, influence on
investors decision making. Second, it measures the extent of behavioural biases, influence on
financial risk tolerance and third it measures the investors decision making influence on financial
risk tolerance. Results reveal that behavioural biases significantly influence investors decision
making and financial risk tolerance. Further, investors decision making significantly influence
financial risk tolerance. This research contributed to our understanding of behavioural biases
through giving academics, researchers, professionals, and financial advisers a fresh perspective
on how to exploit behavioural aspects that are crucial in financial markets when they impact the
investors and make financial decisions.
We examine the impact of digital financial inclusion on the diversification of individual stock investments in China using nationwide data from the Chinese Stock Market Individual Investor Survey and the Peking University Digital Financial Inclusion Index of China. We show that digital financial inclusion significantly increases the diversification of individual stock investments, primarily by reducing investors' perceived transaction costs and mitigating investors' limited attention. It also plays a more significant role among investors with lower conventional financial development, lower financial literacy, below 45 years old, shorter investment experience and females. We recommend the continued promotion of digital financial inclusion to optimise asset allocation in Chinese households.
Esse trabalho buscou por meio de uma ampla pesquisa bibliográfica pontuar os atributos provenientes da participação feminina na governança de instituições financeiras do Brasil. Para tanto, utilizou-se da pesquisa descritiva com abordagem qualitativa onde forem categorizados 11 atributos que se repetiram por várias vezes em pesquisas científicas ao longo de 26 anos de publicações. Utilizando-se de premissas aplicadas na análise de conteúdo, foram eliminados resultados com similaridade, porém sem representatividade. Como principal achado, destaca-se que a participação feminina na governança das principais instituições financeiras no Brasil é baixa, entretanto, aquelas que continuam liderando ranking como as melhores desse setor possuem mais participação feminina dentre as demais. Logo, esse estudo revela a exemplo de outros trabalhos mencionados na pesquisa, que esse fenômeno merece atenção.
This research assessed gender differences in the accuracy of self-perceptions. Do males and females with equal ability have similar self-perceptions of their ability? Three measures of accuracy were used: accuracy of self-evaluations, calibration for individual questions, and response bias. As hypothesized, for a masculine task, significant gender differences were found for all three measures: Females' self-evaluations of performance were inaccurately low, their confidence statements for individual questions were less wel calibrated than males; and their response bias was more conservative than males'. None of these gender differences were found for feminine and neutral tasks. As hypothesized, strong self-consistency tendencies were found. Expectancies emerged as an important predictor of self-evaluations of performance for both genders and could account for females' inaccurately low self-evaluations on the masculine task. How females' inaccurate self-perceptions might negatively affect achievement behavior and curtail their participation in masculine domains is discussed.
Risks tend to be judged lower by men than by women and by white people than by people of colour. Prior research by Flynn, Slovic and Mertz [Risk Analysis, 14, pp. 1101-1108] found that these race and gender differences in risk perception in the United States were primarily due to 30% of the white male population who judge risks to be extremely low. The specificity of this finding suggests an explanation in terms of sociopolitical factors rather than biological factors. The study reported here presents new data from a recent national survey conducted in the United States. Although white males again stood apart with respect to their judgements of risk and their attitudes concerning worldviews, trust, and risk-related stigma, the results showed that the distinction between white males and others is more complex than originally thought. Further investigation of sociopolitical factors in risk judgements is recommended to clarify gender and racial differences.
Examined gender differences on horizontality and verticality tasks to determine whether they are mediated by gender differences in expectancies for success. In Study 1, using 42 male and 42 female undergraduates, it was found that females had lower expectancies for successful performance than males and that Ss with lower expectancies tended to perform poorly. In Study 2, using 36 male and 61 female undergraduates, expectancies for success were manipulated. Some Ss were led to believe that males do well on the tasks, others that females do well, and a 3rd group served as a control. Results indicate that only males' performance changed in accordance with expectations. Although females' expectations changed across conditions, they showed no corresponding change in performance. It is concluded that expectancies can play only a partial role in contributing to females' difficulty with tasks assessing knowledge of spatial concepts. (20 ref) (PsycINFO Database Record (c) 2012 APA, all rights reserved)
Research has shown that gender differences in self-perceptions exist. However, interpretational ambiguities make it impossible to determine whether these gender differences are due to the operation of biases. The present research investigated whether gender differences in biased self-perceptions exist by assessing the accuracy of posttask self-evaluations of performance. In accordance with self-consistency theory, it was hypothesized that Ss' expectancies affect their posttask self-evaluations. For example, men who generally have high expectancies on masculine-gender-typed tasks were hypothesized to evidence overly positive self-evaluations. Women, who generally hold low expectancies on masculine tasks, were hypothesized to hold overly negative self-evaluations. Results confirmed that self-consistency tendencies can partially explain self-perception biases. The implications of these findings for women's achievement behavior and self-confidence are discussed. (PsycINFO Database Record (c) 2012 APA, all rights reserved)
Investigated how often people are wrong when they are certain that they know the answer to a question. Five studies with a total of 528 paid volunteers suggest that the answer is "too often." For a variety of general-knowledge questions, Ss first chose the most likely answer and then indicated their degree of certainty that the answer they had selected was, in fact, correct. Across several different question and response formats, Ss were consistently overconfident. They had sufficient faith in their confidence judgments to be willing to stake money on their validity. The psychological bases for unwarranted certainty are discussed in terms of the inferential processes whereby knowledge is constructed from perceptions and memories. (15 ref) (PsycINFO Database Record (c) 2012 APA, all rights reserved)
Several recent studies have found that women invest their pensions more conservatively than men (Bajtelsmit and VanDerhei, 1996; Hinz, McCarthy, and Turner, 1996) and that women are more risk averse (Jianakoplos and Bernasek, 1996). Although these findings have serious implications for the well-being of women in retirement, the reasons for observed gender differences are less well- defined. This paper surveys the existing literature regarding gender differences in investment and considers the policy implications of these differences. The authors provide a summary and organization of the explanations for gender differences that have been offered in a variety of fields, including economics, sociology, education and gender studies.
In this study subjects were asked about their competence as drivers in relation to a group of drivers. The results showed that a majority of subjects regarded themselves as more skillful and less risky than the average driver in each group respectively. This result was compared with similar recent findings in other fields. Finally, the consequences for planning and risk taking of seeing oneself as more competent than others were discussed briefly.
This paper uses an analysis of betting decisions made in offcourse betting offices in the UK to explore differences between the nature of male and female betting behaviour. Specifically gender differences in levels of performance, propensity for risk taking and levels of confidence in betting decisions are considered. The results provide some evidence for greater risk propensity amongst male bettors, lower levels of female bettor confidence in their choices and some degree of performance advantage for women bettors. The results are discussed in relation to previous research; some of the apparent discrepancies are explained in terms of differences in motivational focus and gender differences in definitions of risk-taking and 'successful' performance. In this context areas for future research are highlighted.
Forty male and 40 female American university students, assessed for individual differences in locus of control (LC) beliefs, selected and performed either skill or chance-determined tasks that varied in probability of success. Behavioral risk indexes revealed several sex differences, among them riskier preferences by men than women under chance conditions. Person-situation LC combination interactions were found for probability preference variability and outcome-contingent preference shifts. Attribution and task informativeness ratings indicated evidence of greater concern over outcomes in chance situations by persons with external control beliefs.
Most discussions of the cost of investing in equity mutual funds focus on one component of cost, the expense ratio, and ignore another significant cost, sales loads. As a result, conclusions about the total cost of mutual fund investing have often been incomplete or misleading. This paper analyzes trends in the cost of investing in equity mutual funds from 1980 to 1997 using a measure called "total shareholder cost." This measure includes all major costs of investing in a mutual fund and is comparable to the fee and expense information required by the U.S. Securities and Exchange Commission in the mutual fund prospectus. The paper finds that the average cost of invest- ing in equity mutual funds has dropped by more than one-third since 1980. The paper also finds evidence of economies of scale among equity funds.
Experts are often asked to assess two different kinds of probabilities. One is THE PROBABILITY THAT SOMETHING WILL HAPPEN: rain, hitting an oil well, dying in an operation, tube fracture, a total melt-down. We will call these probabilities “predictions”. Experts’ predictions are widely used in all sorts of personal and public decision making. Two examples of formal usage of expert opinion are risk analyses and expert systems used for diagnostic tasks. The second kind of probability assessed by experts is THE PROBABILITY THAT THEIR ANSWERS ARE CORRECT. We will call these probabilities “confidence ratings”. A little later we will demonstrate that predictions and confidence ratings have often been confused in the literature.
Previous reviewers have suggested that women display lower self-confidence than men across almost all achievement situations. The empirical validity of this suggestion is assessed. The literature indicates that although low self-confidence is indeed a frequent and potentially debilitating problem among women, they are not lower in self-confidence than men in all achievement situations. Instead, it is argued that the nature of this sex difference depends upon such situation variables as the specific ability area, the availability of performance feedback, and the emphasis placed upon social comparison or evaluation. It is concluded that future research must more precisely identify the variables that influence women's self-confidence. (41 ref) (PsycINFO Database Record (c) 2012 APA, all rights reserved)
Although gender differences are fairly consistent when people report their general confidence, much less is known about such differences when individuals assess the degree of confidence they have in their ability to answer any particular test question. The objective of this research was to investigate gender differences in item-specific confidence judgments. Data were collected from 3 psychology courses containing 70 men and 181 women. After answering each item on course exams, students indicated their confidence that their answer to that item was correct. Results showed that gender differences in confidence are dependent on the context (whether items were correct or wrong) and on the domain being tested. Moreover, although both men and women were overconfident, undergraduate men were especially overconfident when incorrect. (PsycINFO Database Record (c) 2012 APA, all rights reserved)
Instructed 55 male and 75 female undergraduates to evaluate the performance of either a male or female stimulus person who was heard to perform in an above-average manner on either a male- or female-related task. Analysis of the attributions made to luck vs skill in explaining the performance of the stimulus person showed that as predicted, performance by a male on a masculine task was more often attributed to skill, whereas an equivalent performance by a female on the same task was considered to be more influenced by luck. Contrary to prediction, the reverse did not hold true for performance on a feminine task. Overall, males were seen as more skillful than females. The utility of an attributional analysis in the study of perceived sex differences is discussed. (PsycINFO Database Record (c) 2012 APA, all rights reserved)
Three studies to pinpoint the underlying dynamics related to risk-taking in skilled and chance situations are presented. Study 1 is an attempt to demonstrate that cognitive and motivational theories of risk-taking must be combined to account for individual differences in skilled situations. Here, both informational influences as related to uncertainty orientation (R. M. Sorrentino and J. C. Short, 1986) and affective influences as related to achievement-related motives are examined. In support of these notions, this study found that individual differences in uncertainty orientation and achievement-related motives combine to produce the greatest preference or avoidance of moderate risk (as opposed to low or high) in a skilled situation. Studies 2 and 3 show that the effect for uncertainty orientation generalizes to chance situations. Gender differences were also found to combine or interact with these effects. Taken together, these 3 studies help to clarify many issues remaining in the risk-taking area. (PsycINFO Database Record (c) 2012 APA, all rights reserved)
There exist many laboratory experiments with assessment of subjective probabilities. This paper presents an attempt to tie an experiment to a “practical” situation involving the development of buying prices on the Stock Exchange. The experiment also studies assessments of nondichotomous distributions in contrast to most other probability assessment experiments. The results confirm that people can quantify their beliefs reasonably well in probabilistic terms. However, subjects often failed to make better forecasts than would mechanical schemes based on past frequencies. The results improved considerably when the distributions assessed by a set of subjects were aggregated into a consensus.
This paper identifies five common risk factors in the returns on stocks and bonds. There are three stock-market factors: an overall market factor and factors related to firm size and book-to-market equity. There are two bond-market factors, related to maturity and default risks. Stock returns have shared variation due to the stock-market factors, and they are linked to bond returns through shared variation in the bond-market factors. Except for low-grade corporates, the bond-market factors capture the common variation in bond returns. Most important, the five factors seem to explain average returns on stocks and bonds.
The pattern of overconfidence and underconfidence observed in studies of intuitive judgment is explained by the hypothesis that people focus on the strength or extremeness of the available evidence (e.g., the warmth of a letter or the size of an effect) with insufficient regard for its weight or credence (e.g., the credibility of the writer or the size of the sample). This mode of judgment yields overconfidence when strength is high and weight is low, and underconfidence when strength is low and weight is high. We first demonstrate this phenomenon in a chance setup where strength is defined by sample proportion and weight is defined by sample size, and then extend the analysis to more complex evidential problems, including general knowledge questions and predicting the behavior of self and of others. We propose that people's confidence is determined by the balance of arguments for and against the competing hypotheses, with insufficient regard for the weight of the evidence. We show that this account can explain the effect of item difficulty on overconfidence, and we relate the observed discrepancy between confidence judgments and frequency estimates to the illusion of validity. Finally, we contrast the present account with a frequentistic model of confidence proposed by Gigerenzer and his colleagues, and present data that refute their model.
The character of gender differences in money styles is examined. On average, money style item scores for young adult males and females are found to be consistently disparate.Males and females are both likely to see money as closely linked with esteem and power, but males are more prone to feel involved and competent in money handling, and take risks to amass wealth. Females have a greater sense of envy and deprivation with respect to money as a means of obtaining things and experiences that they can enjoy in the present.
The Central Electricity Generating Board in England and Wales is a highly integrated organization employing 80,000 people in some 240 power stations outputting about 48,000 MW of power (at maximum demand) into the National Grid supplying power to each demand area. The industry is capitalized at about £2,000 million and is organized into five regions of which the Midlands Region has a capital investment level of some £600 million in about 32 power stations.Because the CEGB is charged with providing a ‘secure’ service and because the complex equipment requires lengthy planned overhauls (not withstanding unplanned but shorter breakdowns) the incidence of overhauls across the UK must be carefully organized so that enough power output capability exists in any part of the country at any time to supply the national demand via the grid system (see text books on the problems of alternating current flows in large systems).This paper describes how the subjective probabilities of overhaul completion gleaned from workers in each power station, are combined in the Midlands Region Information Centre. These results are utilized by Management in the form of a prediction of the expected capabilities of the level of power generation over a possible horizon of 30 weeks. The conceptual background to the centre is discussed together with the mode of implementation. Finally the nature and the consistency of subjective reporting is reviewed.
Two experiments were conducted to determine the effect of sex of subject, stated sex linkage of task, and task outcome on causal attributions of an actor's performance. Results from both studies showed that: (1) males evaluate their performance more favorably than do females, despite equivalent objective scores; (2) males claim greater ability than do females following task performance; and (3) females are more prone to use luck to explain performance. The evidence also suggests that the difference between males and females in performance evaluation and self-attribution occurs most strongly in response to failure and on masculine tasks. The results are interpreted in terms of a general expectancy model.
The authors consider a model of the stock market with delegated portfolio management. Portfolio managers try, but sometimes fail, to discover profitable trading opportunities. Although it is best not to trade in this case, their clients cannot distinguish 'actively doing nothing,' in this sense, from 'simply doing nothing.' The authors show that some portfolio managers trade even though they have no reason to prefer one asset to another (noise trade); the amount of such noise trade can be large compared to the amount of hedging volume; and, perhaps surprisingly, noise trade may be Pareto improving. Copyright 1997 by the University of Chicago.
This article introduces a new measure of portfolio performance and applies it to study the performance of a large sample of mutual funds. In contrast to previous studies of mutual fund performance, the measure used in this study employs portfolio holdings and does not require the use of a benchmark portfolio. It finds that the portfolio choices of mutual fund managers, particularly those that managed aggressive growth funds, earned significantly positive risk-adjusted returns in the 1976-85 period. Copyright 1993 by University of Chicago Press.
The authors present a model of portfolio allocation by noise traders with incorrect expectations about return variances. For such misperceptions, noise traders who do not affect prices can earn higher expected returns than rational investors with similar risk aversion. Moreover, such noise traders can come to dominate the market in that the probability that they eventually have a high share of total wealth is close to one. Noise traders come to dominate despite their taking of excessive risk and their higher consumption. The authors conclude that the case against their long-run viability is not as clear-cut as is commonly supposed. Coauthors are Andrei Shleifer, Lawrence H. Summers, and Robert J. Waldmann. Copyright 1991 by University of Chicago Press.
Assessing the price evolution of houses on the basis of average sales prices, as is current practice in Belgium, might be misleading due to changing characteristics of the houses sold in the periods observed. A hedonic index which takes into account changes in characteristics is more appropriate. We use the budget surveys of the Belgian Statistical Institute to illustrate how this also applies for Belgium. The estimated hedonic price index for house sales on the secondary market is practically always below the index based on average sales values for the period considered. This demonstrates the need to collect more extensive data on the characteristics of the dwellings sold in Belgium.
The main purpose of this study is the development of a model for evaluating the performance of portfolios of risky assets taking into account the effects of differential risk on required returns. The portfolio evaluation model developed here incorporates these risk aspects explicitly by utilizing and extending recent theoretical results by Sharpe (1964) and Lintner (1965) on the pricing of capital assets under uncertainty. Given these results, a measure of portfolio performance (which measures only a manager's ability to forecast security prices) is defined as the difference between the actual returns on a portfolio in any particular holding period and the expected returns on that portfolio conditional on the riskless rate, its level of systematic risk, and the actual returns on the market portfolio. Criteria for judging a portfolio's performance to be neutral, superior, or inferior are established. A measure of a portfolio's efficiency is also derived, and the criteria for judging a portfolio to be efficient, superefficient, or inefficient are defined. I also show that it is strictly impossible to define a measure of efficiency solely in terms of ex post observable variables. I define two forms of the efficient market hypothesis, the weak form and the strong form (following terminology introduced by Harry Roberts, who used these terms in an unpublished speech entitled Clinical vs. Statistical Forecasts of Security Prices, given at the Seminar on the Analysis of Security Prices sponsored by the Center for Research in Security Prices at the Univ. of Chicago, May 1967. One can define a weakly efficient market in the following sense: Consider the arrival in the market of a new piece of information concerning the value of a security. A weakly efficient market is a market in which it may take time to evaluate this information with regard to its implications for the value of the security. Once this evaluation is complete, however, the price of the security immediately adjusts (in an unbiased fashion) to the new value implied by the information. In such a weakly efficient market, the past price series of a security will contain no information not already impounded in the current price. In such a market, forecasting techniques which use only the sequence of past prices to forecast future prices are doomed to failure. The best forecast of future price is merely the present price plus the normal expected return over the period. The available evidence suggests that it is highly unlikely that an investor or portfolio manager will be able to use the past history of stock prices alone (and hence mechanical trading rules based on these prices) to increase his profits. However, the conclusion that stock prices follow the weak form of the efficient market hypothesis allows for an investor to increase his profits by improving his ability to predict and evaluate the consequences of future events affecting stock prices. This brings us to the strong form definition of an efficient market, that is, one in which all past information available up to time t is impounded in the current price. If security prices conform to the strong form of the hypothesis, no analyst will be able to earn above-average returns by attempting to predict future prices on the basis of past information. The only individual able to earn superior returns will be that person who occasionally is the first to acquire a new piece of information not generally available to others in the market. But as Roll (1968) argues, in attempting to act immediately on this information, this individual will insure that the effects of this new information are quickly impounded in the security's price. Furthermore, if new information of this type arises randomly, no individual will be able to assure himself of systematic receipt of such information. Therefore, while an individual may occasionally realize such windfall returns, he will be unable to earn them systematically through time. While the weak form of the hypothesis is well substantiated by empirical evidence, the strong form of the hypothesis has not as yet been subjected to extensive empirical tests. The model developed in this paper allows us to submit the strong form of the hypothesis to such an empirical test - at least to the extent that its implications are manifested in the success or failure of one particular class of extremely well-endowed security analysts. I use the portfolio evaluation model developed here to examine the results achieved by the managers of 115 open end mutual funds. The main conclusions are: 1) The observed historical patterns of systematic risk and return for the mutual funds in the sample are consistent with the joint hypothesis that the capital asset pricing model is valid and that the mutual fund managers on average are unable to forecast future security prices. 2) If we assume that the capital asset pricing model is valid, then the empirical estimates of fund performance indicate that the fund portfolios were inferior after deduction of all management expenses and brokerage commissions generated in trading activity. When all management expenses and brokerage commissions are added back to the fund returns and the average cash balances of the funds are assumed to earn the riskless rate, the fund portfolios appeared to be just neutral. Thus, on the average the resources spent by the funds in to forecast security prices do not yield higher portfolio returns than those which could have been earned by equivalent risk portfolios selected (a) by random selection policies or (b) by combined investments in a market portfolio and government bonds. 3) I conclude that as far as these 115 mutual funds are concerned, prices of securities seem to behave according to the strong form of the efficient market hypothesis. That is, it appears that the current prices of securities completely capture the effects of all information available to these 115 mutual funds. Although these results certainly do not imply that the strong form of the hypothesis holds for all investors and for all time, they provide strong evidence in support of that hypothesis. 4) The evidence also indicates that, while the portfolios of the funds on the average are inferior and inefficient, this is due mainly to the generation of excessive expenses.
Overconfidence in clinicians was examined in two independently designed studies, each using a different research approach. The first study examined treatment choices of physicians in treating breast cancer, and the second rapid decision making among nurses working in Intensive Care Units. In both studies, individual respondents were highly confident they had made the right choice ('micro-certainty'), although there was no consensus across respondents as to what the optimal treatment would be ('macro-uncertainty'). The difference between micro-certainty of individuals and macro-uncertainty within the clinical community may cast some light on the persistence of practice variation. The implications of overconfidence in clinical treatment for patients, practitioners, and professional regulation are discussed.
Many prominent theorists have argued that accurate perceptions of the self, the world, and the future are essential for mental health. Yet considerable research evidence suggests that overly positive self-evaluations, exaggerated perceptions of control or mastery, and unrealistic optimism are characteristic of normal human thought. Moreover, these illusions appear to promote other criteria of mental health, including the ability to care about others, the ability to be happy or contented, and the ability to engage in productive and creative work. These strategies may succeed, in large part, because both the social world and cognitive-processing mechanisms impose filters on incoming information that distort it in a positive direction; negative information may be isolated and represented in as unthreatening a manner as possible. These positive illusions may be especially useful when an individual receives negative feedback or is otherwise threatened and may be especially adaptive under these circumstances.
This study reports on physicians' processing of probabilistic information while they were treating possible pneumonia patients at an outpatient clinic. Physicians overestimated the patients' probability of pneumonia but were sensitive to relative differences in the predictive value of symptoms when present and absent, and appeared to use base-rate information correctly when making clinical judgments.
This paper reports the results of a national survey in which perceptions of environmental health risks were measured for 1275 white and 214 nonwhite persons. The results showed that white women perceived risks to be much higher than did white men, a result that is consistent with previous studies. However, this gender difference was not true of nonwhite women and men, whose perceptions of risk were quite similar. Most striking was the finding that white males tended to differ from everyone else in their attitudes and perceptions--on average, they perceived risks as much smaller and much more acceptable than did other people. These results suggest that socio-political factors such as power, status, alienation, and trust are strong determiners of people's perception and acceptance of risks.
This study investigated whether psychologists' confidence in their clinical decisions is really justified. It was hypothesized that as psychologists study information about a case (a) their confidence about the case increases markedly and steadily but (b) the accuracy of their conclusions about the case quickly reaches a ceiling. 32 judges, including 8 clinical psychologists, read background information about a published case, divided into 4 sections. After reading each section of the case, judges answered a set of 25 questions involving personality judgments about the case. Results strongly supported the hypotheses. Accuracy did not increase significantly with increasing information, but confidence increased steadily and significantly. All judges except 2 became overconfident, most of them markedly so. Clearly, increasing feelings of confidence are not a sure sign of increasing predictive accuracy about a case.
This article argues that the size-related regularities in asset prices should not be regarded as anomalies. Indeed, the opposite
result is demonstrated. Namely, a truly anomalous regularity would be if an inverse relation between size and return was not
observed. We show theoretically (1) that the size-related regularities should be observed in the economy and (2) why size will in general explain the part of the cross-section of expected returns left unexplained by an incorrectly specified
asset pricing model. In light of these results we argue that size-related measures should be used in cross-sectional tests
to detect model misspecifications.
A model of trading in speculative markets is developed based on differences of opinion among traders. Our purpose is to explain some of the empirical regularities that have been documented concerning the relationship between volume and price and the time-series properties of price and volume. We assume that traders share common prior beliefs and receive common information but differ in the way in which they interpret this information. Some results are that absolute price changes and volume are positively correlated, consecutive price changes exhibit negative serial correlation, and volume is positively autocorrelated. Article published by Oxford University Press on behalf of the Society for Financial Studies in its journal, The Review of Financial Studies.
We develop a multiperiod market model describing both the process by which traders learn about their ability and how a bias in this learning can create overconfident traders. A trader in our model initially does not know his own ability. He infers this ability from his successes and failures. In assessing his ability the trader takes too much credit for his successes. This leads him to become overconfident. A trader's expected level of overconfidence increases in the early stages of his career. Then, with more experience, he comes to better recognize his own ability. The patterns in trading volume, expected profits, price volatility, and expected prices resulting from this endogenous overconfidence are analyzed. Article published by Oxford University Press on behalf of the Society for Financial Studies in its journal, The Review of Financial Studies.
The authors find that single women exhibit relatively more risk aversion in financial decision making than single men. Using U.S. sample data, they examine household holdings of risky assets to determine whether there are gender differences in financial risk taking. As wealth increases, the proportion of wealth held as risky assets is estimated to increase by a smaller amount for single women than for single men. Gender differences in financial risk taking are also influenced by age, race, and number of children. Greater financial risk aversion may provide an explanation for women's lower levels of wealth compared with men's. Copyright 1998 by Oxford University Press.
The standard models of financial markets such as the Sharpe-Lintner mean-variance model or the Rubinstein-Breeden-Litzenberger contingent consumption model both assume more-or-less homogenous probability beliefs.1 There has been some work on extending the mean-variance model to allow for differences in beliefs across agents; see Jarrow (1980), Lintner (1969), Mayshar (1983), and Williams (1977). Differences in beliefs in contingent commodities models have received much less attention. The major references are Rubinstein (1975, 1976a), Breeden and Litzenberger (1978), Hakansson et al. (1982), and Milgrom and Stokey (1982).
We analyze tests for long-run abnormal returns and document that two approaches yield well-specified test statistics in random samples. The first uses a traditional event study framework and buy-and-hold abnormal returns calculated using carefully constructed reference portfolios. Inference is based on either a skewness-adjusted "t"-statistic or the empirically generated distribution of long-run abnormal returns. The second approach is based on calculation of mean monthly abnormal returns using calendar-time portfolios and a time-series "t"-statistic. Though both approaches perform well in random samples, misspecification in nonrandom samples is pervasive. Thus, analysis of long-run abnormal returns is treacherous. Copyright The American Finance Association 1999.
In a duopoly model of informed speculation, the authors show that overconfidence may strictly dominate rationality since an overconfident trader may not only generate higher expected profit and utility than his rational opponent but also higher than if he were also rational. This occurs because overconfidence acts like a commitment device in a standard Cournot duopoly. As a result, for some parameter values the Nash equilibrium of a two-fund game is a prisoner's dilemma in which both funds hire overconfident managers. Thus, overconfidence can persist and survive in the long run. Copyright 1997 by American Finance Association.
Explores the expectations of entrepreneurs in newlyestablished businesses regarding their own chances of success and theirpredictionsregarding the chances for success of others with similarstartup ideas, in one of the first such studies. Past research suggests that,at best, fewer than 50% of firms survive for more than five years with a givenowner/manager. Based on this past research, three hypotheses are posited:entrepreneurs will perceive their odds of success at less than or equal to 50%,entrepreneurs' prediction of others' success will not differ significantly fromtheir prediction of their own success, and entrepreneurs' expectations ofsuccess will be related to a number of personal factors including theirbusiness experience, prior ownership, and educational level. Data were gathered from surveys sent in 1985 to members of the NationalFederation of Independent Business (NFIB) who reported that they had openedtheir own businesses in the United States. Of those responding, 2994entrepreneurs were selected from the original sample. Findings did not support any of the three original hypotheses of cautiousoptimism (as prior research predicted). In fact, the results show thatentrepreneurs' perceptions of their own odds for success display a noteworthydegree of optimism. In addition, entrepreneurs believe their own odds ofsuccess to be greater than other new business owners with similar ideas.Furthermore, an analysis of the predicted factors for success showed aremarkable lack of relationship between an entrepreneur's belief of their ownpotential and the objective predictors. In fact, those who were poorly preparedseemed just as optimistic as those who were well prepared. One implication isthat business founders should seek advice from more objective outsiders.(SFL)
This paper explicitly models investor behaviour in financial markets allowing for traits linked to a notion of imperfect rationality. We study an extreme form of posterior overconfidence where some risk neutral investors overestimate the precision of their private information. They compete in market orders with another group of informed traders who have rational expectations. The participation of overconfident traders in the market leads to higher transactions volume, larger depth, more volatile and more informative prices. More importantly, such traders may make higher expected profits than rational ones and may even earn more than if they switched to rational behaviour. Their unconscious commitment to aggressive trading offers them a `first mover advantage'. I consider an extension with risk averse market makers and find that the nature of results depends on whether exogenous noise trading exists.
Using a sample free of survivor bias, the author demonstrates that common factors in stock returns and investment expenses almost completely explain persistence in equity mutual funds' mean and risk-adjusted returns. Darryll Hendricks, Jayendu Patel, and Richard Zeckhauser's (1993) 'hot hands' result is mostly driven by the one-year momentum effect of Narasimham Jegadeesh and Sheridan Titman (1993), but individual funds do not earn higher returns from following the momentum strategy in stocks. The only significant persistence not explained is concentrated in strong underperformance by the worst-return mutual funds. The results do not support the existence of skilled or informed mutual fund portfolio managers. Copyright 1997 by American Finance Association.