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Investor Overconfidence and the Security Market Line: New Evidence from China
| Content Provider | Semantic Scholar |
|---|---|
| Author | Han, Xing Li, Youwei |
| Copyright Year | 2019 |
| Abstract | This paper documents a highly downward sloping security market line (SML) in China, which is more puzzling than the typical “flattened” SML in the US, and does not reconcile with existing theories of low-beta anomaly. We show that investor overconfidence offers some promises in resolving the puzzle in China: In the time-series dimension, the slope of the SML becomes more “inverted” when investors get more overconfident. This dynamic overconfidence effect is intensified with biased self-attribution. As a general symptom of overconfidence in the cross section, high-beta stocks are also the mostly heavily traded. After accounting for trading volume, there is no longer the low-beta anomaly at both the firm and portfolio levels. Mutual fund evidence reinforces the view that institutional investors actively exploit the portfolio implications of a downward sloping SML by shying away from high-beta stocks and betting on low-beta stocks for superior performance. |
| File Format | PDF HTM / HTML |
| DOI | 10.2139/ssrn.3284886 |
| Alternate Webpage(s) | https://acfr.aut.ac.nz/__data/assets/pdf_file/0003/186582/SML_2018708.pdf |
| Alternate Webpage(s) | https://doi.org/10.2139/ssrn.3284886 |
| Language | English |
| Access Restriction | Open |
| Content Type | Text |
| Resource Type | Article |
