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An empirical analysis of behavioral finance theories in international equity markets
| Content Provider | Semantic Scholar |
|---|---|
| Author | Leibniz, Wilhelm Wirtschaftswissenschaften, Doktor Der |
| Copyright Year | 2007 |
| Abstract | Financial markets play a key role in modern economies and are thus subject to a huge amount of theoretical and empirical research. Yet there is little evidence that standard neoclassical, rational models explain determinants of financial market movements, let alone forecast these movements. Therefore, new theories have been put forward under the roof of "behavioral finance" that aim at a better description of real-world behavior of investors who do not confine to the ideal of the rational decision-maker due to psychological and information-processing constraints. The five chapters of this dissertation empirically test several key concepts of behavioral finance and investigate, whether the hypothesis of non-rational decision making is helpful for understanding the behavior of financial market movements and the behavior of investors. Summarizing the evidence, two major conclusions can be drawn from the empirical results presented here. First, it is found that behavioral biases matter for asset prices and investment behavior. This conclusion is rooted in all five chapters and manifests itself through the predictive power of investor sentiment for expected long-horizon returns, the empirical success of myopic loss aversion for explaining the cross-section of expected stock returns and the systematic portfolio biases of laymen and professionals. A second conclusion can be drawn for the role of institutional versus individual investors. As the results document, there is a significant difference between the two investor groups. Whereas institutions seem to be more in line with the ideal of rational investors who collect and aggregate fundamental information, individuals are more heavily plagued by systematic biases in their investment behavior and seem to represent a source of noise trader risk in financial markets. |
| File Format | PDF HTM / HTML |
| Alternate Webpage(s) | https://www.repo.uni-hannover.de/bitstream/handle/123456789/7014/549818499.pdf?isAllowed=y&sequence=1 |
| Language | English |
| Access Restriction | Open |
| Content Type | Text |
| Resource Type | Article |
