Executives’ Overconfidence, Political Connection and Acquisition Premium of Enterprises

Investor Overconfidence and the Forward Premium Puzzle

We offer an explanation for the forward premium puzzle in foreign exchange markets based upon investor overconfidence. In the model, overconfident individuals overreact to their information about future inflation, which causes greater overshooting in the forward rate than in the spot rate. Thus, when agents observe a signal of higher future inflation, the consequent rise in the forward premium ...

Confidence and Overconfidence in Political Economy∗

This paper studies the role of overconfidence in political behavior. We posit a simple model of overconfidence in beliefs. The model predicts that overconfidence leads to ideological extremeness, increased voter turnout, and increased strength of partisan identification. Moreover, the model makes many nuanced predictions about the patterns of ideology in society, and over a person’s lifetime. W...

Information Acquisition, Overconfidence and Portfolio Performance∗

Rational investors perceive correctly the value of financial information. Investment in information is therefore rewarded with a higher Sharpe ratio. Overconfident investors overstate the quality of their own information, and thus attain a lower Sharpe ratio. We contrast the implications of the two models using a survey of customers of an Italian leading bank with portfolio data and measures of...

Unskilled traders, overconfidence and information acquisition

The value of an asset has two components, referred to as obvious and obscure. Unskilled traders are only aware of the obvious component and thus overestimate the precision of the information they may acquire. Unskilled traders are overconfident when informed and the intensity at which they trade makes researching the obscure component profitable to skilled traders, and this even when research c...

Online Appendix for Overconfidence in Political Behavior