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A Behavioral Approach to Stock Pricing

Jayash Paudel

Colorado College

Judith A. Laux

Colorado College - Department of Economics and Business

April 5, 2010

Colorado College Working Paper No. 2010-01

Recent literature in behavioral finance has contradicted the notion of efficiency of markets. Greater emphasis on how psychological biases influence both the behavior of investors and asset prices has led to a strong debate among proponents of behavioral finance and neoclassical finance. This has created the need to study how psychology affects financial decisions in households, markets and organizations. This study conducts a pooled ordinary least squares (OLS) model using the fixed effects estimator to investigate the linkage between investor sentiment and stock prices for 35 firms belonging to three different industries over a time period of 56 years, from 1950 to 2005. The findings suggest that investor sentiment does not significantly affect the stock prices in this sample.

Number of Pages in PDF File: 8

Keywords: Market Efficiency, Stochastic Discount Factor Model, Behavioral Finance, Investor Sentiment Function, Stock Prices

JEL Classification: G1, D1

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Date posted: April 6, 2010  

Suggested Citation

Paudel, Jayash and Laux, Judith A., A Behavioral Approach to Stock Pricing (April 5, 2010). Colorado College Working Paper No. 2010-01. Available at SSRN: http://ssrn.com/abstract=1584727 or http://dx.doi.org/10.2139/ssrn.1584727

Contact Information

Jayash Paudel
Colorado College ( email )
14 East Cache La Poudre Street
Colorado Springs, CO 80903
United States
Judith A. Laux (Contact Author)
Colorado College - Department of Economics and Business ( email )
Colorado Springs, CO 80903
United States
7193896414 (Phone)
7193896927 (Fax)
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