Asset Pricing, Signal Type and Overconfident Investors

  • Balachandran, Bala (Primary Chief Investigator (PCI))
  • Faff, Robert (Chief Investigator (CI))
  • Theobald, Michael (Partner Investigator (PI))

    Project: Research

    Project Details

    Project Description

    Models reflecting behavioural biases (eg conservatism, overconfidence) provide rationales for short-term overreactions and long-term mean reversion. We expand the overconfidence framework to generate new testable hypotheses based upon differing reactions to private/public signals. We demonstrate that differing combinations of private/public signals, both in time and through time, lead to differing adjustment processes in terms of underreactions, overreactions and serial autocovariances. The generalised implications are operationalised by using a number of instruments to differentiate between firms with predominately public versus private signals. Testable implications will be empirically investigated using Australian, US and UK data.
    StatusFinished
    Effective start/end date1/01/0630/06/08

    Funding

    • Australian Research Council (ARC): AUD212,000.00
    • Monash University: AUD74,000.00