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Table of ContentsThe Effects of Stock Lending on Security Prices: An Experiment Coexistence and Dynamics of Overconfidence and Strategic Incentives Underwater and Not Walking Away: Shame, Fear and the Social Management of the Housing Crisis Some Statistical Tests and Experiments for Correlation of Financial Series | ||||||||||
BEHAVIORAL & EXPERIMENTAL FINANCE ABSTRACTS"The Effects of Stock Lending on Security Prices: An Experiment"
STEVEN N. KAPLAN, University of Chicago - Booth School of Business, National Bureau of Economic Research (NBER) Working with a sizeable (greater than $15 billion in assets) anonymous money manager, we exogenously shift the supply of lendable shares for certain stocks by randomly making available for lending 2/3 of the stocks in the manager’s portfolio and withholding 1/3 of the stocks from the loan market. The lending program commenced in early September 2008 and the loans were recalled in mid-September 2008, with over $700 million of securities lent out at the peak of the study. During the lending (recall) period, returns to stocks randomly made available for lending were not lower (not greater) than returns to stocks randomly withheld from lending. Stocks randomly made available for lending experienced no differences in volatility, bid-ask spreads, or skewness than stocks randomly withheld from lending during either the lending or recall period. We find some evidence that loan supply increases volatilities and spreads for stocks with high short interest and expected loan spreads. "Coexistence and Dynamics of Overconfidence and Strategic Incentives"
KATRIEN BOSQUET, Catholic University of Leuven (KUL) - Faculty of Business and Economics (FBE) We present a two-stage model for the decision making process of financial analysts when issuing earnings forecasts. In the first stage, financial analysts perform a fundamental earnings analysis in which they are, potentially, subject to a behavioral bias. In the second stage analysts can adjust their earnings forecast in line with their strategic incentives. The paper analyzes this decision process throughout the forecasting period and explains the underlying drivers. Using quarterly earnings forecasts, we document that throughout the entire forecasting period financial analysts overweight their private information. At the same time, financial analysts behave strategically. They issue initial optimistic forecasts by strategically inflating their forecast. In their last revision, they become pessimistic and strategically deflate their earnings forecast, which creates the possibility of a positive earnings surprise. This analysis of the dynamics of the decision process provides empirical evidence on the coexistence of overconfidence and strategic incentives. "Underwater and Not Walking Away: Shame, Fear and the Social Management of the Housing Crisis"
BRENT T. WHITE, University of Arizona - James E. Rogers College of Law Despite reports that homeowners are increasingly “walking away� from their mortgages, most homeowners continue to make their payments even when they are significantly underwater. This article suggests that most homeowners choose not to strategically default as a result of two emotional forces: 1) the desire to avoid the shame and guilt of foreclosure; and 2) exaggerated anxiety over foreclosure’s perceived consequences. Moreover, these emotional constraints are actively cultivated by the government and other social control agents in order to encourage homeowners to follow social and moral norms related to the honoring of financial obligations - and to ignore market and legal norms under which strategic default might be both viable and the wisest financial decision. Norms governing homeowner behavior stand in sharp contrast to norms governing lenders, who seek to maximize profits or minimize losses irrespective of concerns of morality or social responsibility. This norm asymmetry leads to distributional inequalities in which individual homeowners shoulder a disproportionate burden from the housing collapse. "Some Statistical Tests and Experiments for Correlation of Financial Series"
NIKOLAI DOKUCHAEV, Trent University - Department of Mathematics This short note describes some statistical tests and experiments for serial correlations of historical stock prices. More precisely, some parameters calculated via empirical characteristics functions are compared with the same parameters for time series with known degree of correlation. | ||||||||||
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Solicitation of Abstracts
Behavioral and Experimental Finance publishes working and accepted paper abstracts covering all aspects of behavioral and experimental finance. Its mission is to foster a better understanding of those elements of human psychology, both cognitive (mental) and affective (emotional) that influence the decision making process. The journal provides promising new research to the academic and the Wall Street communities that incorporates the methods used in the behavioral disciplines and decision sciences with the ones from Standard Finance, so that decision makers and their judgments can be studied from individual, group, organizational, and market perspectives.
Distribution ServicesIf your organization is interested in increasing readership for its research by starting a Research Paper Series, or sponsoring a Subject Matter eJournal, please email: RPS@SSRN.com Distributed by:DirectorsFEN SUBJECT MATTER EJOURNALS MICHAEL C. JENSEN Please contact us at the above addresses with your comments, questions or suggestions for FEN-Sub. Advisory BoardBehavioral & Experimental Finance H. KENT BAKER ROBERT J. BLOOMFIELD WERNER F.M. DEBONDT MELISSA FINUCANE BARUCH FISCHHOFF DAVID A. HIRSHLEIFER DANIEL KAHNEMAN LISA A. KRAMER ANDREW W. LO RUTH H. LYTTON ELTON G. MCGOUN JOHN R. NOFSINGER TERRANCE ODEAN EDGAR E. PETERS RICHARD L. PETERSON HENRY O. PRUDEN HERSH SHEFRIN ANDREI SHLEIFER PAUL SLOVIC MEIR STATMAN LYNN A. STOUT MICHAL ANN STRAHILEVITZ RICHARD H. THALER ANNETTE VISSING-JORGENSEN JEFFREY WURGLER JASON ZWEIG
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