(Presentation Slides) Investor Overconﬁdence, Covariance Risk, and Predictors of Securities Returns
60 Pages Posted: 21 Aug 2018
Date Written: September 11, 1998
Presentation Slides for "Overconfidence, Arbitrage, and Equilibrium Asset Pricing" This paper offers a model in which asset prices reflect both covariance risk and misperceptions of firmsapos prospects, and in which arbitrageurs trade against mispricing. In equilibrium, expected returns are linearly related to both risk and mispricing measures (e.g., fundamental/price ratios). With many securities, mispricing of idiosyncratic value components diminishes but systematic mispricing does not. The theory offers untested empirical implications about volume, volatility, fundamental/price ratios, and mean returns, and is consistent with several empirical findings. These include the ability of fundamental/price ratios and market value to forecast returns, and the domination of beta by these variables in some studies.
Paper can be found here: https://ssrn.com/abstract=1288932.
Keywords: investor psychology, asset pricing, arbitrage, overconfidence, behavioral finance, misvaluation, risk, expected returns
JEL Classification: D03, D14, D46, D84, G11, G12, G14, G32, G35, M41
Suggested Citation: Suggested Citation