The Market Impact of Trends and Sequences in Performance: New Evidence

Carey School of Business Working Paper

33 Pages Posted: 23 Jun 2003

See all articles by Greg R. Durham

Greg R. Durham

Montana State University - Bozeman - College of Business

J. Spencer Martin

University of Melbourne - Faculty of Business and Economics; Financial Research Network (FIRN)

Michael G. Hertzel

Arizona State University (ASU) - Finance Department

Multiple version iconThere are 2 versions of this paper

Date Written: May 23, 2003

Abstract

This study contributes to the body of direct evidence testing behavioral finance theories, in particular evidence on market reactions to trends and patterns in performance data. Whereas Chan, Frankel, and Kothari (2002) find scant evidence that stock markets react in ways consistent with pervasive representativeness bias, Bloomfield and Hales (2002) find strong evidence that experimental market subjects are influenced by trends and patterns. We examine these issues using the football wagering market as our price laboratory. Sports betting markets have several advantages over traditional capital markets as an empirical setting, and commonalities with traditional markets allow for useful insights. The evidence in our market is mixed: Over long performance horizons, bettor behavior is consistent with the experimental subjects in Bloomfield and Hales (2002); over shorter horizons, the results are more consistent with Chan, Frankel, and Kothari (2002). We also find evidence that investors in this market behave in a manner consistent with the shifting regimes model of Barberis, Shleifer, and Vishny (1998).

Keywords: Regime Shifting Beliefs, Behavioral Finance

JEL Classification: G12, G14

Suggested Citation

Durham, Greg R. and Martin, J. Spencer and Hertzel, Michael G., The Market Impact of Trends and Sequences in Performance: New Evidence (May 23, 2003). Carey School of Business Working Paper, Available at SSRN: https://ssrn.com/abstract=411021 or http://dx.doi.org/10.2139/ssrn.411021

Greg R. Durham

Montana State University - Bozeman - College of Business ( email )

446 Reid Hall
Bozeman, MT 59715
United States

J. Spencer Martin (Contact Author)

University of Melbourne - Faculty of Business and Economics ( email )

Faculty of Economics and Commerce
Parkville, Victoria 3010 3010
Australia

Financial Research Network (FIRN)

C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia

HOME PAGE: http://www.firn.org.au

Michael G. Hertzel

Arizona State University (ASU) - Finance Department ( email )

W. P. Carey School of Business
P.O. Box 873906
Tempe, AZ 85287-3906
United States
480-965-6869 (Phone)
602-965-8539 (Fax)

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