1 / 6

Behavioral Finance

Behavioral Finance. Economics 437. Announcements. Prof Burton speaking at noon at Farmington on Tuesday, April 22 nd …. Picnic at Prof Burton’s – Sunday, April 20 th , near Foxfield, Noon to 3 PM Next midterm is April 15 th (Tuesday). So, where are we?. Fama-French, 1992

rafal
Download Presentation

Behavioral Finance

An Image/Link below is provided (as is) to download presentation Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author. Content is provided to you AS IS for your information and personal use only. Download presentation by click this link. While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server. During download, if you can't get a presentation, the file might be deleted by the publisher.

E N D

Presentation Transcript


  1. Behavioral Finance Economics 437

  2. Announcements • Prof Burton speaking at noon at Farmington on Tuesday, April 22nd…. • Picnic at Prof Burton’s – Sunday, April 20th, near Foxfield, Noon to 3 PM • Next midterm is April 15th (Tuesday)

  3. So, where are we? • Fama-French, 1992 • Focus on BE/ME (and ME) • They conclude that there are unknown “risk” factors • Behavioralists conclude the EMH is false • DeBondt & Thaler, 1984 (“Mean Reversion”) • Based upon 5 year periods • Buy “losers” Sell “winners” • Earn 25 % net….mostly on the purchase of “losers” • Dubbed “overreaction” or “mean reversion” • Jagedeesh & Titman, 1993 (“Price” momentum) • 3 to 12 month periods • Buy “winners” Sell “losers • Average gain of “zero cost portfolio” is 1 % per month • Chordia & Shivumkar (Earnings momentum subsumes price momentum) • 9 percent per month • Negative January effect • Scott & Murillo “Rational Part of Momentum,” 2008 • “Informed investors” buy early • Prices “predict” future increases in fundamental value • Sadka on Liquidity • How is liquidity to be defined • Conclusion: liquidity is driving “momentum” • Kothari, Lewellen & Warner • Does momentum hold true in the aggregate • Point to “discount rate” changes as important

  4. Petkova & Zhang, “Is Value Riskier than Growth,” 2005 • Background • LSV argued that growth was actually riskier than value • Thus EMH is false • Petkova – Zhang say “no” • Use “expected market premium” as opposed to “actual market premium” • This reverses results • Time varying betas that are “pro-cyclical”

  5. Lewellen & Nagel, “Conditional CAPM does not explain anomalies”, 2006 • This argument is that beta can’t explain much of the returns from value stocks • Time varying betas in the wrong direction • Alpha’s positive, big and significant • Hence EMH is in trouble • Use actual “market premium” as opposed to the approach of Petkova Zhang, who use “expected market premium

  6. End

More Related