Investor Overconfidence and the Forward Discount Puzzle

摘要：

This paper offers an explanation for the forward discount puzzle in foreign exchange markets based upon investor overconfidence, a well-documented psychological phenomenon that has been found to be consistent with several trading and return patterns in securities markets. In our model, overconfident individuals overreact to their information about future inflation differential. The spot and the forward exchange rates differentially reflect such overreaction; as a result, the forward discount forecasts reversal in the spot rate. With plausible parameters, our model explains the existence of forward discount puzzle as well as known stylized facts such as how the forward discount bias varies with time horizon and time-series versus cross-sectional test method. Further, our model generates new empirical predictions such as how the forward discount bias varies with shifts in volume and volatility.

作者: Bing Han David Hirshleifer Tracy Yue Wang

作者单位: School of Business,University of Texas at Austin,1 University Station - B6600,Austin,TX 78712 Business Growth,Finance,The Paul Merage School of Business,Irvine,CA 92697 Carlson School of Management,University of Minnesota,321 19th Avenue South,Minneapolis,MN 55455

会议类型: 国际会议

会议名称: 2007年中国国际金融年会

会议地点: 成都

会议语种:英文

在线出版日期: 2007-07-09（万方平台首次上网日期，不代表论文的发表时间）