This paper offers a continuous time, general equilibrium model where a risky asset is traded among risk-averse overconfident investors. Two kinds of overconfidence are introduced: investors exhibit relative overconfidence if each investor believes her model is better than others’ and aggregate overconfidence if they believe signals have more information content than those in the true model. Rel...

We use the adaptive LASSO from the statistical learning literature to identify economically connected industries in a general predictive regression framework. The framework permits complex industry interdependencies, including both direct and indirect sectoral links. Consistent with gradual information diffusion across economically connected industries, we find extensive evidence that lagged re...

In this study, we compare the performance of trading strategies based on possibly mis-specified mathematical models with a trading strategy based on a technical trading rule. In both cases, the trader attempts to predict a change in the drift of the stock return occurring at an unknown time.We explicitly compute the trader’s expected logarithmic utility of wealth for the various trading strateg...

We use a new and unique dataset to investigate the way investors react to prior gains/losses and the so called ”familiarity” bias. We distinguish between di¤erent behavioral theories (loss aversion, house-money e¤ect, mental accounting) and between behavioral and rational hypotheses (pure familiarity and informationbased familiarity). We show that, on an yearly horizon, investors react to previ...

The study empirically investigates the relationship between the value anomaly and firms’ investment and financing environment. The evidence supports the relevance of investment irreversibility and the value anomaly as suggested in Zhang (2005). The higher the investment irreversibility gap between value and growth firms, the higher the value premium. While the Fama and French three factor model...

Using the introduction of Arrowhead low latency trading platform by Tokyo Stock Exchange as a natural experiment, I analyze the impact of high frequency trading on market quality of JREITs, in terms of liquidity, volatility, and systemic risks. I also analyze the impact of the 2008 financial crisis. The results document that while the crisis has significantly deteriorated the market quality, th...

Article history: Received 7 May 2011 Received in revised form 3 November 2012 Accepted 16 January 2013 Available online 26 January 2013 We analyze how gender and age, internal characteristics of retail futures traders—one that remains fixed while the other changes over a lifetime—and the security being traded and bull– bear market conditions, two external factors, are related to the disposition...

This paper examines the relationship between seasonality, idiosyncratic risk and mutual fund returns using multifactor models. We use a large sample containing the return histories of 728 UK mutual funds over a 23-year period to measure fund performance. We present evidence that idiosyncratic risk cannot be eliminated, we also find evidence of seasonality in all fund categories. Specifically, w...

We exploit a novel setting in which the same piece of information affects two sets of firms: one set of firms requires straightforward processing to update prices, while the other set requires more complicated analyses to incorporate the same piece of information into prices. We document substantial return predictability from the set of easy-to-analyze firms to their more complicated peers. Spe...