How Value–Glamour Investors Use Financial Information: UK Evidence of Investor’s Confirmation Bias

42 Pages Posted: 8 Oct 2010

See all articles by Chau Minh Duong

Chau Minh Duong

Canterbury Christ Church University

Gioia Pescetto

University of Portsmouth

Daniel Santamaria

affiliation not provided to SSRN

Date Written: August 2010

Abstract

The paper investigates investor’s behaviour in the context of value–glamour investing and fundamental analysis, and provides a direct test of the confirmation bias by bringing together the evidence from several strands of literature into a well-defined framework of investor behaviour. The empirical evidence presented is in line with a model of investor’s asymmetric reaction to good and bad news due to confirmation bias. Pessimistic value investors typically under-react to good financial information, but they process bad information rationally or over-confidently. On the contrary, glamour investors are often too optimistic to timely update prices following bad financial information, but they are likely to fairly price or even over-react when receiving good information.

Keywords: Value–glamour investing, financial statement analysis, contextual fundamental analysis, market efficiency, behavioural finance, confirmation bias

JEL Classification: G14

Suggested Citation

Duong, Chau Minh and Pescetto, Gioia Maria Rita and Santamaria, Daniel, How Value–Glamour Investors Use Financial Information: UK Evidence of Investor’s Confirmation Bias (August 2010). Available at SSRN: https://ssrn.com/abstract=1688255 or http://dx.doi.org/10.2139/ssrn.1688255

Chau Minh Duong (Contact Author)

Canterbury Christ Church University ( email )

United Kingdom

Gioia Maria Rita Pescetto

University of Portsmouth ( email )

Richmond Building
Portland Street
Portsmouth, Hampshire PO1 3DE
United Kingdom
+44(0)2392844057 (Phone)
+44(0)2392844059 (Fax)

Daniel Santamaria

affiliation not provided to SSRN ( email )

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