Abstract

http://ssrn.com/abstract=1571191
 
 

References (44)



 
 

Citations (7)



 


 



Can Overconfidence and Biased Self-Attribution Explain the Momentum, Reversal and Share Issuance Anomalies? Evidence from Short-Term Institutional Investors


Martijn Cremers


University of Notre Dame

Ankur Pareek


Rutgers University

December 1, 2011

AFA 2011 Denver Meetings Paper

Abstract:     
This paper presents evidence supporting the theory that market under- and overreactions are based on investor overconfidence and biased self-attribution, two well-documented psychological biases. Our proxy for overconfidence is the duration of the stock in the investor’s portfolio, with overconfidence leading to overly frequent trading. Biased self-attribution is captured by focusing on short-term institutional investors with excellent recent performance. Consistent with the predictions of Daniel, Hirshleifer and Subrahmanyam (1998), the presence of short-term institutional investors can help explain increases in idiosyncratic volatility as well as many of the best-known stock return anomalies. Specifically, momentum returns, subsequent returns reversal, as well as the share issuance anomalies are generally much stronger for stocks held primarily by short-term investors, especially if these investors had superior recent performance. Our results are symmetric on the long and short side of these anomalies, ruling out the alternative hypothesis of superior skills.

Number of Pages in PDF File: 59

Keywords: stock holding duration, return anomalies, institutional investors

JEL Classification: G12, G14

working papers series


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Date posted: March 17, 2010 ; Last revised: February 23, 2012

Suggested Citation

Cremers, Martijn and Pareek, Ankur, Can Overconfidence and Biased Self-Attribution Explain the Momentum, Reversal and Share Issuance Anomalies? Evidence from Short-Term Institutional Investors (December 1, 2011). AFA 2011 Denver Meetings Paper. Available at SSRN: http://ssrn.com/abstract=1571191 or http://dx.doi.org/10.2139/ssrn.1571191

Contact Information

K. J. Martijn Cremers
University of Notre Dame ( email )
P.O. Box 399
Notre Dame, IN 46556-0399
United States
Ankur Pareek (Contact Author)
Rutgers University ( email )
1 Washington Park
Newark, NJ 07102
United States
973-353-1646 (Phone)
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