Investor Overconfidence and the Increase in Idiosyncratic Risk
We examine how investor overconfidence contributes to the strong positive trend in idiosyn- cratic risk over recent decades documented in the literature. We find that investor overconfidence is positively related to idiosyncratic risk at both the individual stock and market levels, and that overconfidence has also been increasing over the past 30 years. Moreover, controlling for investor overconfidence either reduces or eliminates the positive trend in idiosyncratic risk. The results are robust when changes in fundamental values, including profitability, growth option, and age are controlled. We argue therefore that in addition to changes in fundamental values, investor overconfidence is another driving force of the increasing trend in idiosyncratic risk. Lastly, our tests show that although a moderate level of overconfidence is pervasive and grows over time, an extremely high level of overconfidence can lead to market failures.
Overconfidence Idiosyncratic Risk
Eric C. Chang Yan Luo
School of Business,Faculty of Business and Economics,University of Hong Kong,Pokfulam Road,Hong Kong
国际会议
大连
英文
1-54
2008-07-02（万方平台首次上网日期，不代表论文的发表时间）