Predicting the next step of a random walk: experimental evidence of regime-shifting beliefs
نویسندگان
چکیده
Barberis, Shleifer, and Vishny (1998) construct a model in which investors use the prevalence of past trend reversals as an indicator of the likelihood of future reversals. While such “regime-shifting” beliefs are consistent with a variety of psychological theories, other contrary predictions are consistent with the same theories. We report two experiments with MBA-student participants that strongly support the existence of regime-shifting beliefs. We conclude that regime-shifting models can provide a useful framework for understanding market anomalies, including underreactions to earnings changes and overreactions to long-term earnings trends. JEL classification: C91; G12; M41
منابع مشابه
Behavioral Biases and Investor Behavior: Predicting the Next Step of a Random Walk (Revisited and Extended)
Bloomfield and Hales (2002) (BH) reports results from experiments that support the existence of regime-shifting beliefs of the type theorized by Barberis, Shleifer, and Vishny (1998) (BSV). We revisit and extend the BH experiments to provide new evidence on BSV and on a competing model by Rabin (2002). We first argue that the BH experiments cannot provide a definitive test of BSV because the se...
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