Abstract

http://ssrn.com/abstract=1785508
 
 

References (49)



 
 

Citations (1)



 


 



Biased Beliefs, Asset Prices, and Investment: A Structural Approach


Aydogan Alti


University of Texas at Austin - Department of Finance

Paul C. Tetlock


Columbia Business School - Finance and Economics

June 2013

Journal of Finance, Forthcoming

Abstract:     
We structurally estimate a model in which agents' information processing biases can cause predictability in firms’ asset returns and investment inefficiencies. We generalize the neoclassical investment model by allowing for two biases -- overconfidence and over-extrapolation of trends -- that distort agents' expectations of firm productivity. Our model’s predictions closely match empirical data on asset pricing and firm behavior. The estimated bias parameters are well-identified and exhibit plausible magnitudes. Alternative models without either bias or with efficient investment fail to match observed return predictability and firm behavior. These results suggest that biases affect firm behavior, which in turn affects return anomalies.

Number of Pages in PDF File: 59

Keywords: mispricing, market efficiency, behavioral biases, overconfidence, extrapolation, investment efficiency

JEL Classification: G10, G12, G30

Accepted Paper Series





Download This Paper

Date posted: May 12, 2011 ; Last revised: October 31, 2013

Suggested Citation

Alti, Aydogan and Tetlock, Paul C., Biased Beliefs, Asset Prices, and Investment: A Structural Approach (June 2013). Journal of Finance, Forthcoming. Available at SSRN: http://ssrn.com/abstract=1785508 or http://dx.doi.org/10.2139/ssrn.1785508

Contact Information

Aydogan Alti (Contact Author)
University of Texas at Austin - Department of Finance ( email )
Red McCombs School of Business
Austin, TX 78712
United States
Paul C. Tetlock
Columbia Business School - Finance and Economics ( email )
3022 Broadway
New York, NY 10027
United States
212-854-9895 (Fax)
HOME PAGE: http://www0.gsb.columbia.edu/faculty/ptetlock/

Feedback to SSRN


Paper statistics
Abstract Views: 1,275
Downloads: 265
Download Rank: 66,578
References:  49
Citations:  1

© 2014 Social Science Electronic Publishing, Inc. All Rights Reserved.  FAQ   Terms of Use   Privacy Policy   Copyright   Contact Us
This page was processed by apollo5 in 0.328 seconds