Investor psychology and security market under- and overreactions

Article Abstract:

We propose a theory of securities market under- and overreactions based on two well-known psychological biases: investor overconfidence about the precision of private information; and biased self-attribution, which causes asymmetric shifts in investors' confidence as a function of their investment outcomes. We show that overconfidence implies negative long-lag autocorrelations, excess volatility, and, when managerial actions are correlated with stock mispricing, public-event-based return predictability. Biased self-attribution adds positive short-lag autocorrelations ("momentum"), short-run earnings "drift," but negative correlation between future returns and long-term past stock market and accounting performance. The theory also offers several untested implications and implications for corporate financial policy. (Reprinted by permission of the publisher.)

Psychological aspects, Research, Stock-exchange, Exchanges, Investments, Investors, Return on investment, Rate of return

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A first look at the accuracy of the CRSP mutual fund database and a comparison of the CRSP and Morningstar mutual fund databases

Article Abstract:

A paper measuring the accuracy of the CRSP mutual fund database by comparing it to the returns of the Morningstar mutual fund database is presented. Research results reveal problems with missing and inadequate data in the CRSP database, as well as an upward bias in its returns data.

United States, Economics, Research and Development in the Social Sciences and Humanities, Investment Offices, Mutual Fund Mgmt Companies, Portfolio Management, Analysis, Economic research, Securities industry, Information services, Mutual funds, Mutual fund industry, Morningstar Inc., University of Chicago. Center for Research in Security Prices

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