This research comes within the framework of behavioral finance and aims at explain high levels of trading volume, the excessive volatility, under and overreaction to news caused by the overconfidence of investors. We have thus studied the implication of overconfidence in the French market during the period extending from March2000 to December 2012. The results obtained seem to confirm the overconfidence hypothesis. First, we found that overconfident investors trade more aggressively in periods subsequent to market gains. Second, the analysis of the relation between return volatility and trading volume showed that the excessive trading of overconfident investors makes a contribution to the observed excessive volatility in its conditional measure. However, the overconfidence can’t explain the excessive volatility in its implicit measure, this is due to the incorporation of the risk premium. Third, we showed that overconfident investors overreact to private information and underreact to public information.
“Financial market anomalies and behavioral biases: Implications of overconfidence bias”,
Scalera, F.
2018-01-01
Abstract
This research comes within the framework of behavioral finance and aims at explain high levels of trading volume, the excessive volatility, under and overreaction to news caused by the overconfidence of investors. We have thus studied the implication of overconfidence in the French market during the period extending from March2000 to December 2012. The results obtained seem to confirm the overconfidence hypothesis. First, we found that overconfident investors trade more aggressively in periods subsequent to market gains. Second, the analysis of the relation between return volatility and trading volume showed that the excessive trading of overconfident investors makes a contribution to the observed excessive volatility in its conditional measure. However, the overconfidence can’t explain the excessive volatility in its implicit measure, this is due to the incorporation of the risk premium. Third, we showed that overconfident investors overreact to private information and underreact to public information.File | Dimensione | Formato | |
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