Review of Behavioral Finance最新文献

{"title":"Lottery stocks in Brazil: investigating risk premium and investor behavior","authors":"Gabriel Sifuentes Rocha, Márcio Poletti Laurini","doi":"10.1108/rbf-09-2023-0249","DOIUrl":"https://doi.org/10.1108/rbf-09-2023-0249","url":null,"abstract":"<h3>Purpose</h3>\u0000<p>This study investigates the paradox of lotteries in financial markets, challenging traditional utility models predicated on rational behavior amid uncertainty. It explores why investors are drawn to lotteries despite the potential trade-off between risk-adjusted returns and sporadically substantial gains.</p><!--/ Abstract__block -->\u0000<h3>Design/methodology/approach</h3>\u0000<p>Employing a multifaceted approach, the study first scrutinizes diverse theories elucidating the perplexing behavior of lottery investors. Subsequently, it assesses the premium attached to lottery stock shares in the Brazilian financial market using distinct methodologies, thereby offering a comprehensive analysis of this phenomenon. Finally, the study estimates the risk premium associated with the lottery stocks applying an extended Fama–French multifactor model and searching for evidence of overlap with other risk-based anomalies.</p><!--/ Abstract__block -->\u0000<h3>Findings</h3>\u0000<p>This research unveils theories underpinning seemingly irrational investor behavior vis-à-vis lotteries, revealing the motivations propelling investors to willingly exchange risk-adjusted returns for the allure of substantial but infrequent gains. Empirical evidence delineates the extent of the premium paid for lottery stocks in the Brazilian market.</p><!--/ Abstract__block -->\u0000<h3>Originality/value</h3>\u0000<p>The study’s novelty lies in its amalgamation of theoretical exploration, empirical analysis and the application of the Fama–French factor model to gauge the risk premium associated with lottery-related behavior. Furthermore, its investigation of lottery stocks within the Brazilian market introduces a distinctive dimension, elucidating market dynamics and investor behaviors unique to the region.</p><!--/ Abstract__block -->","PeriodicalId":44559,"journal":{"name":"Review of Behavioral Finance","volume":null,"pages":null},"PeriodicalIF":2.0,"publicationDate":"2024-09-12","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"142200174","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}

{"title":"Deciphering CEO disclosure tone inconsistency: a behavioural exploration","authors":"Azam Pouryousof, Farzaneh Nassirzadeh, Davood Askarany","doi":"10.1108/rbf-04-2024-0112","DOIUrl":"https://doi.org/10.1108/rbf-04-2024-0112","url":null,"abstract":"<h3>Purpose</h3>\u0000<p>This research employs a behavioural approach to investigate the determinants of CEO disclosure tone inconsistency. By examining CEO characteristics and psychological attributes, the study aims to unravel the complexities underlying tone variations in Management Discussion and Analysis (MD&amp;A) reports. Through this exploration, the research seeks to contribute to understanding ethical considerations in corporate communications and provide insights into the nuanced interplay between personal, job-related and psychological factors influencing CEO disclosure tone.</p><!--/ Abstract__block -->\u0000<h3>Design/methodology/approach</h3>\u0000<p>The study utilises a dataset comprising 1,411 MD&amp;A reports from 143 companies listed on the Tehran Stock Exchange between 2012 and 2021. Multiple regression analyses with year- and industry-fixed effects are employed to examine the relationships between CEO gender, tenure, duality, ability and psychological attributes such as narcissism, myopia, overconfidence and tone inconsistency. Data analysis involves MAXQDA software for analysing MD&amp;A reports and Rahavard Novin software for document analysis, supplemented by audited financial statements.</p><!--/ Abstract__block -->\u0000<h3>Findings</h3>\u0000<p>The findings reveal significant relationships between CEO characteristics, psychological attributes and tone inconsistency. Female CEOs exhibit reduced tone inconsistency, contrasting with previous research trends. CEO tenure correlates negatively with tone inconsistency, whereas CEO ability shows a positive correlation, indicating a nuanced relationship with performance. However, CEO duality does not exhibit a significant association. Psychological attributes such as narcissism and myopia are positively associated with tone inconsistency, while no substantial connection is found with managerial overconfidence.</p><!--/ Abstract__block -->\u0000<h3>Originality/value</h3>\u0000<p>This research contributes to the inaugural exploration of CEO disclosure tone inconsistency through a behavioural lens, advancing measurement precision in the field. By delving into CEO characteristics and psychological attributes, the study offers unique insights into the roots of tone inconsistency. Applying comprehensive lexicon and phraseology enriches the methodological approach, fostering dialogue among diverse stakeholders and adding distinct perspectives to the discourse on ethical issues in business. Through its meticulous examination of behavioural underpinnings, this study becomes a catalyst for reflection, dialogue and progress in corporate communications and ethical considerations.</p><!--/ Abstract__block -->","PeriodicalId":44559,"journal":{"name":"Review of Behavioral Finance","volume":null,"pages":null},"PeriodicalIF":2.0,"publicationDate":"2024-09-12","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"142200173","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}

{"title":"Do executive facial trustworthiness have impact on IPO underpricing in the Indonesia stock exchange?","authors":"I. Putu Sukma Hendrawan, Cynthia Afriani Utama","doi":"10.1108/rbf-12-2023-0327","DOIUrl":"https://doi.org/10.1108/rbf-12-2023-0327","url":null,"abstract":"<h3>Purpose</h3>\u0000<p>This study aims to investigate the impact of facial-based perceived trustworthiness on stock valuation, particularly, in the initial public offering (IPO). IPO settings provide the opportunity to investigate whether information asymmetry resulting from company newness in the market would influence the incorporation of soft information in the form of executive facial trustworthiness in stock valuation.</p><!--/ Abstract__block -->\u0000<h3>Design/methodology/approach</h3>\u0000<p>We use a recent machine learning algorithm to detect facial landmarks and then calculate a composite facial trustworthiness measure using several facial features that have previously been observed in neuroscience and psychological studies to be the most determining factor of perceived trustworthiness. We then regress the facial trustworthiness of IPO firm executives to IPO underpricing.</p><!--/ Abstract__block -->\u0000<h3>Findings</h3>\u0000<p>Utilizing machine learning algorithms, we find that the facial trustworthiness of the company executive negatively impacts the extent of IPO underpricing. This result implies that investors incorporate the facial trustworthiness of company executives into stock valuation. The IPO underpricing also shows that the cost of equity is higher when perceived trustworthiness is low. With regard to the higher information asymmetry in IPO transactions, such a negative impact implies the role of facial trustworthiness in alleviating information asymmetry.</p><!--/ Abstract__block -->\u0000<h3>Originality/value</h3>\u0000<p>This study provides evidence of the impact of top management personal characteristics on firms’ financial transactions in the Indonesian context. From the perspective of investors and other fund providers, this study shows evidence that heuristics still play an important role in financial decision-making. This is also an indication of investor reliance on soft information. Our research method also provides a new opportunity for the use of machine-learning algorithms in processing non-conventional types of data in finance research, which is still relatively rare in emerging markets like Indonesia. To the best of our knowledge, our study is the first to use personalized measures of trust generated through machine-learning algorithms in IPO settings in Indonesia.</p><!--/ Abstract__block -->","PeriodicalId":44559,"journal":{"name":"Review of Behavioral Finance","volume":null,"pages":null},"PeriodicalIF":2.0,"publicationDate":"2024-08-14","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"142200210","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}

{"title":"Global reversal strategy: equilibrium of endogenous trading?","authors":"Alain Wouassom","doi":"10.1108/rbf-07-2023-0184","DOIUrl":"https://doi.org/10.1108/rbf-07-2023-0184","url":null,"abstract":"PurposeAfter considering the price reversal among countries' indices as a global, coordinated and generalized phenomenon, this paper aims to examine the profitability of the reversal strategy internationally and find an economically essential and predictive reversal effect. Indices' portfolios form based on the prior 48 months; prior losers outperform prior winners by 8.86% per year during the subsequent 48 months. Interestingly, the reversal effect is substantially stronger for emerging countries, yielding 14.04% annually. It remains profitable post-globalization, countering the concern of whether the integration of equity markets synchronized the price reversal worldwide. Returns' differences consistent with portfolio formation approaches are also observed.Design/methodology/approachThis study follows the methodology De Bondt and Thaler (1985) set out and uses the same methodological framework Wouassom et al. (2022) put forward. Nevertheless, this study does not focus on stocks. Still, it employs global equity indices from the viewpoint of an international investor who can switch between worldwide equity indices using a contrarian trading strategy.FindingsMy findings indicate that reversal strategies with overlapping portfolios are profitable over the entire sample period and every formation and holding period. These returns are highly statistically significant and vary considerably from one horizon to another. More importantly, the reversal strategies remain, on average, profitable and significant in the period post-1994 but are not particularly distinctive, which implies that the reversal effect survives the globalization impact and indicates that the integration of equity markets together with the international correlation among markets do not synchronize the prices reversal effect around the world given that.Research limitations/implicationsFurther work would be recommended to study a more extended period dating back to the nineteenth century or the Victorian Era, characterised by rapid economic development in almost every domain, to verify if reversal is historically compensation for carrying risks exclusively during contraction.Practical implicationsMy analysis takes on particular significance given the association between lagged market movement in share prices and investors’ optimism that appears among traders, generating an increasing reversal effect (Siganos and Chelley-Steley, 2006) and has direct implications for predicting and controlling trading costs associated with asset allocation strategies.Social implicationsThe difficulty with using the reversal strategy to uncover the long-term return reversal effects in the equity markets today resides in the fact that the globalization of the economy has fuelled the concentration of assets within institutional investors. The critical insight is that the concentration of equity in the hands of institutional investors activated international equity trading. These institutional investors seek","PeriodicalId":44559,"journal":{"name":"Review of Behavioral Finance","volume":null,"pages":null},"PeriodicalIF":1.9,"publicationDate":"2024-08-12","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"141919462","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}

{"title":"Global reversal strategy: equilibrium of endogenous trading?","authors":"Alain Wouassom","doi":"10.1108/rbf-07-2023-0184","DOIUrl":"https://doi.org/10.1108/rbf-07-2023-0184","url":null,"abstract":"PurposeAfter considering the price reversal among countries' indices as a global, coordinated and generalized phenomenon, this paper aims to examine the profitability of the reversal strategy internationally and find an economically essential and predictive reversal effect. Indices' portfolios form based on the prior 48 months; prior losers outperform prior winners by 8.86% per year during the subsequent 48 months. Interestingly, the reversal effect is substantially stronger for emerging countries, yielding 14.04% annually. It remains profitable post-globalization, countering the concern of whether the integration of equity markets synchronized the price reversal worldwide. Returns' differences consistent with portfolio formation approaches are also observed.Design/methodology/approachThis study follows the methodology De Bondt and Thaler (1985) set out and uses the same methodological framework Wouassom et al. (2022) put forward. Nevertheless, this study does not focus on stocks. Still, it employs global equity indices from the viewpoint of an international investor who can switch between worldwide equity indices using a contrarian trading strategy.FindingsMy findings indicate that reversal strategies with overlapping portfolios are profitable over the entire sample period and every formation and holding period. These returns are highly statistically significant and vary considerably from one horizon to another. More importantly, the reversal strategies remain, on average, profitable and significant in the period post-1994 but are not particularly distinctive, which implies that the reversal effect survives the globalization impact and indicates that the integration of equity markets together with the international correlation among markets do not synchronize the prices reversal effect around the world given that.Research limitations/implicationsFurther work would be recommended to study a more extended period dating back to the nineteenth century or the Victorian Era, characterised by rapid economic development in almost every domain, to verify if reversal is historically compensation for carrying risks exclusively during contraction.Practical implicationsMy analysis takes on particular significance given the association between lagged market movement in share prices and investors’ optimism that appears among traders, generating an increasing reversal effect (Siganos and Chelley-Steley, 2006) and has direct implications for predicting and controlling trading costs associated with asset allocation strategies.Social implicationsThe difficulty with using the reversal strategy to uncover the long-term return reversal effects in the equity markets today resides in the fact that the globalization of the economy has fuelled the concentration of assets within institutional investors. The critical insight is that the concentration of equity in the hands of institutional investors activated international equity trading. These institutional investors seek","PeriodicalId":44559,"journal":{"name":"Review of Behavioral Finance","volume":null,"pages":null},"PeriodicalIF":1.9,"publicationDate":"2024-08-12","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"141919006","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}

{"title":"Mental time travel and the valuation of financial investments: analysing five biases that cause pricing anomalies","authors":"David Blake, John Pickles","doi":"10.1108/rbf-11-2023-0303","DOIUrl":"https://doi.org/10.1108/rbf-11-2023-0303","url":null,"abstract":"<h3>Purpose</h3>\u0000<p>The purpose of this paper is to analyse five biases in the valuation of financial investments using a mental time travel framework involving thought investments – with no objective time passing.</p><!--/ Abstract__block -->\u0000<h3>Design/methodology/approach</h3>\u0000<p>An investment’s initial value, together with any periodic funding cash-flows, are mentally projected forward (at an expected rate of return) to give the value at the investment horizon; and this projected value is mentally discounted back to the present. If there is a difference between the initial and present values, then this can imply a bias in valuation.</p><!--/ Abstract__block -->\u0000<h3>Findings</h3>\u0000<p>The study identifies (and gives examples of) five real-world valuation biases: biased funding cash-flow estimates (e.g., mega infrastructure projects); biased rate of return projections (e.g., market crises, tech stock carve-outs); biased discount rate estimates (e.g., dual-listed shares, dual-class shares, short-termism, time-risk misperception, and long-termism); time-duration misestimation or perception bias when projecting (e.g., time-contracted projections which lead to short-termism); and time-duration misestimation or perception bias when discounting (e.g., time-extended discounting which also leads to short-termism). More than one bias can be operating at the same time and we give an example of low levels of retirement savings being the result of the biased discounting of biased projections. Finally, we consider the effects of the different biases of different agents operating simultaneously.</p><!--/ Abstract__block -->\u0000<h3>Originality/value</h3>\u0000<p>The paper examines key systematic misestimation and psychological biases underlying financial investment valuation pricing anomalies.</p><!--/ Abstract__block -->","PeriodicalId":44559,"journal":{"name":"Review of Behavioral Finance","volume":null,"pages":null},"PeriodicalIF":2.0,"publicationDate":"2024-08-06","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"141949466","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}

{"title":"Price delay and herding: evidence from the cryptocurrency market","authors":"Barbara Abou Tanos, Omar Meharzi","doi":"10.1108/rbf-04-2024-0094","DOIUrl":"https://doi.org/10.1108/rbf-04-2024-0094","url":null,"abstract":"<h3>Purpose</h3>\u0000<p>The purpose of this study is to investigate how the price delay of cryptocurrencies to market news affects the herding behavior of investors, particularly during turbulent events such as the COVID-19 period.</p><!--/ Abstract__block -->\u0000<h3>Design/methodology/approach</h3>\u0000<p>The paper investigates the presence of herding behavior by using Cross-Sectional Absolute Deviation (CSAD) measures. We also investigate the herding activity in the crypto traders’ behavior during up and down-market movements periods and under investor extreme sentiment conditions. The speed of cryptocurrencies’ price response to the information embedded in the market is assessed based on the price delay measure proposed by Hou and Moskowitz (2005).</p><!--/ Abstract__block -->\u0000<h3>Findings</h3>\u0000<p>Our findings suggest that cryptocurrencies characterized by high price delays exhibit more herding among investors, thereby highlighting higher degrees of market inefficiencies. This is also apparent during periods of extreme investor sentiment. We also document an asymmetric herding behavior across cryptocurrencies that present different levels of price speed adjustments to market news during bullish and bearish market conditions. Our results are consistent and robust across different sub-periods, various market return estimations and different price delay frequencies.</p><!--/ Abstract__block -->\u0000<h3>Practical implications</h3>\u0000<p>The study provides crucial guidelines for investors’ asset allocation and risk management strategies. This study is also valuable to regulators and policymakers, particularly in light of the increasing importance of financial reforms aimed at mitigating market distortions and enhancing the resilience of the cryptocurrency market. More specifically, regulations that improve the market’s information efficiency should be prioritized to speed up the response time of cryptocurrency prices to market information, which can help reduce the investors' herding behavior.</p><!--/ Abstract__block -->\u0000<h3>Originality/value</h3>\u0000<p>This paper makes a novel contribution to the academic literature by investigating the unexplored relationship between cryptocurrency price delays and the presence of herding behavior among investors, especially in times of uncertainty such as the COVID-19 pandemic.</p><!--/ Abstract__block -->","PeriodicalId":44559,"journal":{"name":"Review of Behavioral Finance","volume":null,"pages":null},"PeriodicalIF":2.0,"publicationDate":"2024-08-06","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"141949467","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}

{"title":"Shariah compliance fatigue and earnings quality: evidence from MENA","authors":"Harit Satt, George Iatridis","doi":"10.1108/rbf-02-2023-0048","DOIUrl":"https://doi.org/10.1108/rbf-02-2023-0048","url":null,"abstract":"<h3>Purpose</h3>\u0000<p>This research aims to examine the relations between Shariah compliance and earnings quality.</p><!--/ Abstract__block -->\u0000<h3>Design/methodology/approach</h3>\u0000<p>The authors study three Shariah features: Shariah compliance status, level of Shariah compliance (H-Score) and Shariah compliance persistence. The sample consists of 463 firms from the Middle East and North Africa from 2011 to 2018. A variable determining the level of Shariah compliance was created in accordance with the methodology of S&amp;P 500 Shariah and its underlying index, S&amp;P 500. Then, a probate relapse study was created to identify the link between Shariah compliance and earnings quality.</p><!--/ Abstract__block -->\u0000<h3>Findings</h3>\u0000<p>Results show that Shariah-compliant firms engage in lower earnings management compared to their Shariah-non-compliant counterparts. This paper reveals that Shariah compliance status and high level of Shariah compliance have significant positive association with earnings quality. The authors also find novel evidence that persistence of the Shariah-compliant status has a significant negative association with earnings quality.</p><!--/ Abstract__block -->\u0000<h3>Practical implications</h3>\u0000<p>This study only examines firms listed on MENA stock markets. It is recommended to further study different markets in addition to the emerging Arab markets in order to compare and contrast the results. Further, larger sample observations from a greater date range can be used.</p><!--/ Abstract__block -->\u0000<h3>Originality/value</h3>\u0000<p>Few studies have examined the earnings management behavior of Shariah-compliant firms vs Shariah-non-compliant ones in emerging markets; however, no study has focused on Shariah-compliant firms and their level of Shariah compliance. To the best of our knowledge, this is the first study which uses all four proxies for earnings quality in association with Shariah compliance and used new Shariah variables such as <em>Level of Shariah Compliance</em> and <em>Persistent Shariah Compliance status</em>.</p><!--/ Abstract__block -->","PeriodicalId":44559,"journal":{"name":"Review of Behavioral Finance","volume":null,"pages":null},"PeriodicalIF":2.0,"publicationDate":"2024-08-05","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"141884642","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}

{"title":"Exploring the Nordic numbers: an analysis of price clustering in Scandinavian stocks","authors":"Júlio Lobão, Luís Pacheco, Daniel Carvalho","doi":"10.1108/rbf-01-2024-0007","DOIUrl":"https://doi.org/10.1108/rbf-01-2024-0007","url":null,"abstract":"<h3>Purpose</h3>\u0000<p>This paper investigates share price clustering and its determinants across Nasdaq Stockholm, Copenhagen, Helsinki, and Iceland.</p><!--/ Abstract__block -->\u0000<h3>Design/methodology/approach</h3>\u0000<p>This paper investigates share price clustering and its determinants across Nasdaq Stockholm, Copenhagen, Helsinki, and Iceland. Univariate analysis confirms widespread clustering, notably favouring closing prices ending in zero. Multivariate analysis explores the impact of firm size, price level, volatility, and turnover on clustering.</p><!--/ Abstract__block -->\u0000<h3>Findings</h3>\u0000<p>Univariate analysis confirms widespread clustering, notably favouring closing prices ending in zero. Multivariate analysis explores the impact of firm size, price level, volatility, and turnover on clustering. Results reveal pervasive clustering, strengthening with higher prices and turnover but weakening with larger trade volumes, firm size, and smaller tick sizes. These empirical findings support the theoretical expectations of price negotiation and resolution hypotheses.</p><!--/ Abstract__block -->\u0000<h3>Practical implications</h3>\u0000<p>The observed clustering presents an opportunity for investors to potentially capitalize on this market anomaly and achieve supra-normal returns.</p><!--/ Abstract__block -->\u0000<h3>Originality/value</h3>\u0000<p>Price clustering, the phenomenon where certain price levels are traded more frequently, challenges the efficient market hypothesis and has been extensively studied in financial markets. However, the Scandinavian stock markets, particularly those in the Nasdaq Nordic Exchange, remain unexplored in this context.</p><!--/ Abstract__block -->","PeriodicalId":44559,"journal":{"name":"Review of Behavioral Finance","volume":null,"pages":null},"PeriodicalIF":2.0,"publicationDate":"2024-07-19","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"141737921","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}

{"title":"Stock price overreaction: evidence from bull and bear markets","authors":"Valeriy Zakamulin","doi":"10.1108/rbf-03-2024-0088","DOIUrl":"https://doi.org/10.1108/rbf-03-2024-0088","url":null,"abstract":"<h3>Purpose</h3>\u0000<p>In this paper, we provide new evidence to strengthen the stock market overreaction hypothesis by examining a new context that has not been explored before. Our research is inspired by the widely held belief that investor sentiment experiences abrupt changes from optimism to pessimism as the market switches between bull and bear states.</p><!--/ Abstract__block -->\u0000<h3>Design/methodology/approach</h3>\u0000<p>If the stock market overreaction hypothesis is correct, it implies that investors are inclined to become excessively optimistic during bull markets and overly pessimistic during bear markets, resulting in overreaction and subsequent market correction. Consequently, the study first develops two testable hypotheses that can be used to uncover the presence of stock market overreaction with subsequent correction. These hypotheses are then tested using long-term data from the US market.</p><!--/ Abstract__block -->\u0000<h3>Findings</h3>\u0000<p>The study's findings support the hypothesis while also revealing a significant asymmetry in investor overreaction between bull and bear markets. Specifically, our results indicate that investors tend to overreact towards the end of a bear market, and the subsequent bull market starts with a prompt and robust correction. Conversely, investors appear to overreact only towards the end of a prolonged bull market. The correction during a bear market is not confined to its initial phase but extends across its entire duration.</p><!--/ Abstract__block -->\u0000<h3>Research limitations/implications</h3>\u0000<p>Our study has some limitations related to its focus on investigating stock market overreaction in the US market and analyzing the pattern of mean returns during bull and bear market states. Expanding our study to different global markets would be necessary to understand whether the same stock market overreaction effect exists universally. Furthermore, exploring the relationship between volatility and overreaction during different market phases would be an exciting direction for future research, as it could provide a more complete picture of market dynamics.</p><!--/ Abstract__block -->\u0000<h3>Practical implications</h3>\u0000<p>Our study confirms the presence of the stock market overreaction effect, which contradicts the efficient market hypothesis. We have observed specific price patterns during bull and bear markets that investors can potentially exploit. However, successfully capitalizing on these patterns depends on accurately predicting the turning points between bull and bear market states.</p><!--/ Abstract__block -->\u0000<h3>Social implications</h3>\u0000<p>The results of our study have significant implications for market regulators. Stock market overreactions resulting in market corrections can severely disrupt the market, leading to significant financial losses for investors and undermining investor confidence in the overall market. Further, the existence of overreactions suggests that the stock market may not always b","PeriodicalId":44559,"journal":{"name":"Review of Behavioral Finance","volume":null,"pages":null},"PeriodicalIF":2.0,"publicationDate":"2024-07-03","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"141525942","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}