Behavioral Finance: Financial Market Anomalies and a Nobel Prize
Saturday, Jan. 6, 2018 8:00 AM - 10:00 AM
- Chair: Tobias Moskowitz, Yale University
Complexity Aversion When Seeking Alpha
AbstractI provide evidence that news’ complexity and sentiment affect investor attention to news and market reactions. Using field data with randomization from Seeking Alpha, I find standard-deviation increases in headline length (negativity) lead to 12%-fewer (2%-more) views. Effects are greater for less-sophisticated investors. Studying company-earnings-press-release headlines, and using the length of firms’ legal names to instrument headline lengths, I find standard-deviation increases in length lead to 7%-lower turnover, 60-basis-points-tighter-intraday-price ranges, and 15-basis-points-return underreactions, which reverse in three months. Complexity matters more for less-surprising news released on quieter days to less-sophisticated investors.
Sticky Expectations and the Profitability Anomaly
AbstractWe propose a theory of one of the most economically significant stock market anomalies, i.e. the ``profitability'' anomaly. In our model, investors forecast future profits using a signal and sticky belief dynamics. In this model, past profits forecast future returns (the profitability anomaly). Using analyst forecast data, we measure expectation stickiness at the firm level and find strong support for three additional predictions of the model: (1) analysts are on average more pessimistic for high profit firms, (2) the profitability anomaly is stronger for stocks which are followed by stickier analysts, and (3) it is also stronger for stocks with more persistent profits.
Discussion of the 2017 Nobel Prize in Economics and Richard Thaler’s Impact on Financial Markets
- G1 - General Financial Markets