Hard-to-Value Stocks, Behavioral Biases, and Informed Trading

38 Pages Posted: 23 May 2006 Last revised: 13 Mar 2008

See all articles by Alok Kumar

Alok Kumar

University of Miami - Miami Herbert Business School

Multiple version iconThere are 2 versions of this paper

Date Written: March 2008

Abstract

This paper uses investor-level data to provide direct evidence for an intuitive but surprisingly untested proposition that investors make larger investment mistakes when valuation uncertainty is higher and stocks are more difficult to value. Using multiple measures of valuation uncertainty and multiple behavioral bias proxies, I show that individual investors exhibit stronger behavioral biases when stocks are harder-to-value and when market-level uncertainty is higher. I also find that informed trading intensity is higher among stocks where individual investors exhibit stronger behavioral biases. Collectively, these results indicate that uncertainty at both stock and market levels amplifies individual investors' behavioral biases and that relatively better informed investors attempt to exploit those biases.

Suggested Citation

Kumar, Alok, Hard-to-Value Stocks, Behavioral Biases, and Informed Trading (March 2008). Available at SSRN: https://ssrn.com/abstract=903820 or http://dx.doi.org/10.2139/ssrn.903820

Alok Kumar (Contact Author)

University of Miami - Miami Herbert Business School ( email )

514 Jenkins Building
Department of Finance
Coral Gables, FL 33124-6552
United States
305-284-1882 (Phone)

HOME PAGE: http://moya.bus.miami.edu/~akumar

Here is the Coronavirus
related research on SSRN

Paper statistics

Downloads
774
Abstract Views
2,640
rank
33,716
PlumX Metrics