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Essays in Return Predictability After Large Price Shocks
| Title: | Essays in Return Predictability After Large Price Shocks. |
 97 views 69 downloads |
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| Name(s): |
Brady, Kevin P., author Garcia-Feijoo, Luis, Thesis advisor Florida Atlantic University, Degree grantor College of Business Department of Finance |
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| Type of Resource: | text | |
| Genre: | Electronic Thesis Or Dissertation | |
| Date Created: | 2018 | |
| Date Issued: | 2018 | |
| Publisher: | Florida Atlantic University | |
| Place of Publication: | Boca Raton, Fla. | |
| Physical Form: | application/pdf | |
| Extent: | 246 p. | |
| Language(s): | English | |
| Abstract/Description: | In Essay 1, I use cross-country differences in investors’ traits — trust, patience, overconfidence, and risk tolerance — to test the underreaction, overreaction, and uncertain information theories of stock returns. I find that investors’ reactions to large daily stock price shocks vary between lower and higher levels of these traits. Specifically, investors with lower levels of trust and more patience underreact more (or overreact less) to price shocks, which aligns with the predictions of the underreaction hypothesis. Investors with higher levels of overconfidence overreact more to positive price shocks and overreact less to negative price shocks. While this finding does not conform exactly to the predictions of the overreaction hypothesis, it is consistent with more refined theories of how overconfidence affects asset prices. Investors less tolerant of risk overreact less to positive price shocks. I also find that differences in institutional characteristics affect over/underreaction. Specifically, there is less overreaction in countries with stronger investor protections and less insider trading. Additionally, the ability to sell short is associated with more overreaction to negative shocks and less overreaction to positive shocks. In Essay 2, I investigate whether publicly available information (PAI) affects over/underreaction according to predictions of several theoretical models, and then I test if differences in investors’ traits modifies the association between publicly available information and returns. After identifying and correcting for a methodological issue in some prior research, I show that in a pooled international sample of stocks, investors overreact to price shocks not accompanied by information, and also overreact (or react efficiently in some models) to information-based price shocks. I find that the effect of PAI on returns is not the same in each country, which motivates my tests on how this variability relates to differences in investor traits. My results show that investors with higher trust tend to overreact less to shocks accompanied by PAI, while investors less tolerant of risk underreact to positive price shocks. Additionally, investors with higher overconfidence and self-attribution bias overreact more to positive price shocks, but less to negative price shocks, in accordance with behavioral theories. | |
| Identifier: | FA00013153 (IID) | |
| Degree granted: | Dissertation (Ph.D.)--Florida Atlantic University, 2018. | |
| Collection: | FAU Electronic Theses and Dissertations Collection | |
| Note(s): | Includes bibliography. | |
| Subject(s): |
Investors Securities--Prices Individual investors--Attitudes |
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| Held by: | Florida Atlantic University Libraries | |
| Sublocation: | Digital Library | |
| Persistent Link to This Record: | http://purl.flvc.org/fau/fd/FA00013153 | |
| Use and Reproduction: | Copyright © is held by the author with permission granted to Florida Atlantic University to digitize, archive and distribute this item for non-profit research and educational purposes. Any reuse of this item in excess of fair use or other copyright exemptions requires permission of the copyright holder. | |
| Use and Reproduction: | http://rightsstatements.org/vocab/InC/1.0/ | |
| Host Institution: | FAU | |
| Is Part of Series: | Florida Atlantic University Digital Library Collections. |
