00Thaler_FM i-xxvi.qxd

(given the simple nature of arbitrage strategies) there must eventually be overreaction in the longer run as well. Finally, our ...

Appendix: Proofs A. ARMA Representation of the Return Process Let us begin by recalling Eq. (5) from the text (suppressing const ...

where σis the standard deviation of the ε’s. Solving the Yule-Walker equa- tions reduces to solving a system of j+2 linear equat ...

From Eq. (A.9), it follows that the roots xof 1 −φx+φxk+^1 = 0 must lie outside the unit circle (e.g.,
x
>1). It follows tha ...

in a covariance stationary equilibrium. In general, we have not had much problem finding fixed points for wide parameter regions ...

Eq. (A.13) then gives the following set of equations that determine the β’s in equilibrium: (A.14) and (A.15) Using equations (A ...

In general, the βs, κs, and φs in Eq. (A.16) have to be determined numerically as fixed points of equations (A.8) and (A.18) usi ...

References Banerjee, Abhijit, 1992, A simple model of herd behavior, Quarterly Journal of Economics107, 797–817. Barberis, Nicho ...

———, 1992, The cross-section of expected stock returns, Journal of Finance47, 427–65. ———, 1993, Common risk factors in the retu ...

Poterba, James M., and Lawrence H. Summers, 1988, Mean reversion in stock re- turns: Evidence and implications, Journal of Finan ...

Chapter 13 INVESTOR PSYCHOLOGY AND SECURITY MARKET UNDER- AND OVERREACTION Kent Daniel, David Hirshleifer, and Avanidhar Subrahm ...

deviations to be expected under market efficiency (Fama 1998). We believe the evidence does not accord with this viewpoint becau ...

generate new empirical implications. The goal of this work is to develop such a theory of security markets. Our theory is based ...

empirical literature can reasonably be viewed as being responsive to mispric- ing, and have the abnormal return pattern discusse ...

(1997), Odean (1998), and Wang (1998) provide specifications of overcon- fidence as overestimation of information precision, but ...

short- versus long-term autocorrelations, and volatility. Section 3 examines time variation in overconfidence, to derive implica ...

their error variance in making predictions, and overweigh their own forecasts relative to those of others.^5 The second aspect o ...

where

N(0, σ
^2 ) (so the signal precision is 1/σ
^2 ). The Us correctly assess the error variance, but Is underestimate it to ...

B. Implications for Price Behavior This section examines the implications of static confidence for over- and underreactions to i ...

The pattern of correlations described in Proposition 1 is potentially testable by examining whether long-run reversals following ...