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The Shadow of Past on the Investors’ Stock Return Expectations: Past Extrapolatıon

Year 2017, Volume: 24 Issue: 1, 151 - 168, 21.04.2017
https://doi.org/10.18657/yonveek.307516

Abstract

Efficient markets hypothesis suggests that investors form their expectations and make decisions rationally. Psychological biases and heuristics cause systematic outrays from rationality has been documented in the field of behavioural finance. In this research, first I documented some evidence about investors’ overconfidence and overoptimism on forming their stock return expectations. Second, I presented past extrapolation on stock returns by the relations between investor’s past stock returns and outdate financial indicators. Third, investors form their future stock expectations relying on past returns mostly and financial indicators some. Last, the very strong effect of past returns does not diminish by any financial type of indicator on stock return expectations. As a result, investors are not rational as traditional theory suggests.

References

  • Amromin, G., & Sharpe, S. a. (2009). Expectations of Risk and Return among Household Investors: Are their Sharpe Ratios Countercyclical? Board of Governors of the Federal Reserve System Working Paper, 1–43. Retrieved from http://ezproxy.lib.monash.edu.au/login?url=http://search.ebscohost.com/login.aspx?direct=true&db=bth&AN=35912536&site=ehost-live&scope=site
  • Barber, B. M., & Odean, T. (2002). Online Investors: Do the Slow Die First? Review of Financial Studies, 15(2), 455–487. http://doi.org/10.2139/ssrn.219242
  • Benos, A. V. (1998). Aggressiveness and survival of overconfident traders. Journal of Financial Markets, 1(3-4), 353–383. http://doi.org/10.1016/S1386-4181(97)00010-4
  • Bondt, D., F.M, W. (1998). A portrait of the individual investor. European Economic Review, 42(3-5), 831–844. http://doi.org/10.1016/S0014-2921(98)00009-9
  • Bondt, D., F. M. W., & Thaler, R. (1985). Does the Stock Market Overreact? Journal of Finance, 40(3), 793–805. http://doi.org/10.1111/j.1540-6261.1985.tb05004.x
  • Caballé, J., & Sákovics, J. (2003). Speculating against an overconfident market. Journal of Financial Markets, 6(2), 199–225. http://doi.org/10.1016/S1386-4181(01)00030-1
  • Daniel, K., Hirshleifer, D., & Teoh, S. H. (2002). Investor psychology in capital markets: evidence and policy implications. Journal of Monetary Economics, 49(1), 139–209. http://doi.org/10.1016/S0304-3932(01)00091-5
  • Daniel, K. D., Hirshleifer, D., & Subrahmanyam, A. (1998). Investor Psychology and Security Market Under- and Overreactions. Journal of Finance, 53(6), 1839–1886. http://doi.org/10.2307/117455
  • Daniel, K. D., Hirshleifer, D., Berk, J., Brennan, M., Ferson, W., Jones, B., … Spiegel, M. (2001). Overconfidence, Arbitrage, and Equilibrium Asset Pricing. Journal of Finance, LVI(3), 921–965. http://doi.org/10.1111/0022-1082.00350
  • Darrough, M. N., & Russell, T. (2002). A positive model of earnings forecasts: top down versus bottom up. Journal of Business, 75(1), 127–152. doi: 10.1086/323507
  • Dominitz, J., & Manski, C. F. (2003). How should we measure consumer confidence (sentiment)? Evidence from the Michigan Survey of Consumers(No. w9926). National Bureau of Economic Research. http://www.nber.org/papers/w9926
  • Dominitz, J., & Manski, C. F. (2004). How should we measure consumer confidence?. Journal of Economic Perspectives, 51-66. http://www.jstor.org/stable/3216890.
  • Dominitz, J., & Manski, C. F. (2011). Measuring and interpreting expectations of equity returns. Journal of Applied Econometrics, 26(November 2010), 352–370. http://doi.org/10.1002/jae.1225
  • Eames, M., S. Glover, and J. Kennedy (2000). The association between trading recommendations and broker-analysts' earnings forecasts. University of Washington, Working Paper içinde Daniel, K., Hirshleifer, D., Teoh, SW., (2002). Investor Psychology in Capital Markets: Evidence and Policy Implications. Journal of Monetary Economics, Volume 49, Issue 1, ,Pages 139-209. doi:10.1016/S0304-3932(01)00091-5
  • Elliott, W. B., Hodge, F. D., & Jackson, K. E. (2008). The Association between Nonprofessional Investors’ Information Choices and Their Portfolio Returns: The Importance of Investing Experience. Contemporary Accounting Research, 25(2), 473–498. http://doi.org/10.1506/car.25.2.7
  • Fisher, K. L., & Statman, M. (2002). Blowing Bubbles. Journal of Psychology and Financial Markets, 3(1), 53–65. http://doi.org/10.1207/S15327760JPFM0301_08
  • Gervais, S., & Odean, T. (2001). Learning To Be Overconfident. The Review of Financial Studies, 14(1), 1–27. http://doi.org/10.2139/ssrn.36313
  • Griffin, D., & Tversky, A. (1992). The weighing of evidence and the determinants of confidence. Cognitive Psychology, 24(3), 411–435. http://doi.org/10.1016/0010-0285(92)90013-R
  • Kahneman, D., & Riepe, M. W. (1998). Aspects of investor psychology. The Journal of Portfolio Management, 24(4), 52-65. doi: 10.3905/jpm.1998.409643
  • Kyle, A. S., & Wang, F. A. (1997). Speculation Duopoly with Agreement to Disagree : Can Overconfidence Survive the Market Test? Journal of Finance, 52(5), 2073–2090. http://doi.org/10.2307/2329474
  • Lintner, J. (1965). The valuation of risk assets and the selection of risky investments in stock portfolios and capital budgets. The review of economics and statistics, 13-37. http://doi.org/10.2307/1924119
  • Lintner, J. (1969). The aggregation of investor's diverse judgments and preferences in purely competitive security markets. Journal of Financial and Quantitative Analysis, 4(04), 347-400. doi:10.2307/2330056.
  • Long, J. B. De, Shleifer, A., Summers, L. H., & Waldmann, R. J. (1991). The Survival of Noise Traders in Financial Markets. The Journal of Business, 64(1), 1. http://doi.org/10.1086/296523
  • Manski, C. F. (2004). Measuring expectations. Econometrica, 72(5), 1329–1376. http://doi.org/10.1111/j.1468-0262.2004.00537.x
  • Nofsinger, J. R. (2010). The psychology of investing. Pearson Prentice Hall.,isbn: 0-13-611703, Fourth edition
  • Odean, T. (1998). Volume , Volatility , Price , and Profit When All Traders Are Above Average. The Journal of Finance, 53(6), 1887–1934. http://doi.org/10.1111/0022-1082.00078
  • Rothman, A. J., & Hardin, C. D. (1997). Differential use of the availability heuristic in social judgment. Personality and Social Psychology Bulletin,23(2), 123-138.
  • Rublin, Lauren R.,(1997, 23 Haziran). Another chance, Barron’s Magazine
  • Sharpe, W. F. (1964). Capital Asset Prices: A Theory of Market Equilibrium under Conditions of Risk. The Journal of Finance, 19(3), 425–442. http://doi.org/10.2307/2329297
  • Sharpe, W. F. (1970). Portfolio theory and capital markets. McGraw-Hill College.
  • Shefrin, H. (2002). Beyond greed and fear: Understanding behavioral finance and the psychology of investing. Oxford University Press.
  • Thaler, R. H. (1987). Anomalies: The January Effect. Journal of Economic Perspectives, 1(1), 197–201. http://doi.org/10.1257/jep.1.1.197
  • Tversky, A. & Kahneman, D. (1973). Availability: A heuristic of Judging Frequency and Probability. İçinde, D.Kahneman, P.Slovic and A.Tversky (1982). Judgement Under Uncertainity: Heuristics and Biases, Cambridge: Cambridge University Press, pp.1634, 1982 doi:10.1016/0010-0285(73)90033-9
  • Tversky, a, & Kahneman, D. (1974). Judgment under Uncertainty: Heuristics and Biases. Science (New York, N.Y.), 185(4157), 1124–1131. http://doi.org/10.1126/science.185.4157.1124
  • Vissing-Jorgensen, A. (2003). Perspectives on Behavioral Finance: Does “Irrationality” Disappear with Wealth? Evidence from Expectations and Actions. SSRN Electronic Journal (Vol. 18). http://doi.org/10.2139/ssrn.417421

Yatırımcıların Hisse Getirisi Beklentileri Üzerinde Geçmişin Gölgesi: Geçmiş Ekstrapolasyonu

Year 2017, Volume: 24 Issue: 1, 151 - 168, 21.04.2017
https://doi.org/10.18657/yonveek.307516

Abstract

Etkin piyasalar hipotezi, yatırımcıların rasyonel beklentileri olacağını ve rasyonel kararlar vereceklerini ileri sürmektedir. Davranışsal finans çalışmalarında ise psikolojik yanlılıklar ve hevristikler sebebiyle yatırımcıların sistematik olarak rasyonaliteden saptıkları belirlenmiştir. Araştırmada öncelikle yatırımcıların getiri beklentilerini oluştururken rasyonaliteden uzaklaşarak aşırı güven ve iyimserlik içinde olduklarına ilişkin kanıtlar sunulmaktadır. İkinci olarak geçmiş ekstrapolasyonu; yatırımcıların hisse getiri beklentileri üzerinde kendi geçmiş hisse getirilerinin ve geçmiş finansal göstergelerin etkisi ile belirlenmiştir. Üçüncü olarak, yatırımcıların geçmiş hisse getirileri, hisse beklentileri üzerinde çok etkili olduğunda bu etki hiçbir finansal gösterge değişkeni ile azalmamaktadır. Dolayısıyla yatırımcıların geleneksel teorinin öngördüğü şekilde rasyonel olmadıkları bulgulanmıştır.

References

  • Amromin, G., & Sharpe, S. a. (2009). Expectations of Risk and Return among Household Investors: Are their Sharpe Ratios Countercyclical? Board of Governors of the Federal Reserve System Working Paper, 1–43. Retrieved from http://ezproxy.lib.monash.edu.au/login?url=http://search.ebscohost.com/login.aspx?direct=true&db=bth&AN=35912536&site=ehost-live&scope=site
  • Barber, B. M., & Odean, T. (2002). Online Investors: Do the Slow Die First? Review of Financial Studies, 15(2), 455–487. http://doi.org/10.2139/ssrn.219242
  • Benos, A. V. (1998). Aggressiveness and survival of overconfident traders. Journal of Financial Markets, 1(3-4), 353–383. http://doi.org/10.1016/S1386-4181(97)00010-4
  • Bondt, D., F.M, W. (1998). A portrait of the individual investor. European Economic Review, 42(3-5), 831–844. http://doi.org/10.1016/S0014-2921(98)00009-9
  • Bondt, D., F. M. W., & Thaler, R. (1985). Does the Stock Market Overreact? Journal of Finance, 40(3), 793–805. http://doi.org/10.1111/j.1540-6261.1985.tb05004.x
  • Caballé, J., & Sákovics, J. (2003). Speculating against an overconfident market. Journal of Financial Markets, 6(2), 199–225. http://doi.org/10.1016/S1386-4181(01)00030-1
  • Daniel, K., Hirshleifer, D., & Teoh, S. H. (2002). Investor psychology in capital markets: evidence and policy implications. Journal of Monetary Economics, 49(1), 139–209. http://doi.org/10.1016/S0304-3932(01)00091-5
  • Daniel, K. D., Hirshleifer, D., & Subrahmanyam, A. (1998). Investor Psychology and Security Market Under- and Overreactions. Journal of Finance, 53(6), 1839–1886. http://doi.org/10.2307/117455
  • Daniel, K. D., Hirshleifer, D., Berk, J., Brennan, M., Ferson, W., Jones, B., … Spiegel, M. (2001). Overconfidence, Arbitrage, and Equilibrium Asset Pricing. Journal of Finance, LVI(3), 921–965. http://doi.org/10.1111/0022-1082.00350
  • Darrough, M. N., & Russell, T. (2002). A positive model of earnings forecasts: top down versus bottom up. Journal of Business, 75(1), 127–152. doi: 10.1086/323507
  • Dominitz, J., & Manski, C. F. (2003). How should we measure consumer confidence (sentiment)? Evidence from the Michigan Survey of Consumers(No. w9926). National Bureau of Economic Research. http://www.nber.org/papers/w9926
  • Dominitz, J., & Manski, C. F. (2004). How should we measure consumer confidence?. Journal of Economic Perspectives, 51-66. http://www.jstor.org/stable/3216890.
  • Dominitz, J., & Manski, C. F. (2011). Measuring and interpreting expectations of equity returns. Journal of Applied Econometrics, 26(November 2010), 352–370. http://doi.org/10.1002/jae.1225
  • Eames, M., S. Glover, and J. Kennedy (2000). The association between trading recommendations and broker-analysts' earnings forecasts. University of Washington, Working Paper içinde Daniel, K., Hirshleifer, D., Teoh, SW., (2002). Investor Psychology in Capital Markets: Evidence and Policy Implications. Journal of Monetary Economics, Volume 49, Issue 1, ,Pages 139-209. doi:10.1016/S0304-3932(01)00091-5
  • Elliott, W. B., Hodge, F. D., & Jackson, K. E. (2008). The Association between Nonprofessional Investors’ Information Choices and Their Portfolio Returns: The Importance of Investing Experience. Contemporary Accounting Research, 25(2), 473–498. http://doi.org/10.1506/car.25.2.7
  • Fisher, K. L., & Statman, M. (2002). Blowing Bubbles. Journal of Psychology and Financial Markets, 3(1), 53–65. http://doi.org/10.1207/S15327760JPFM0301_08
  • Gervais, S., & Odean, T. (2001). Learning To Be Overconfident. The Review of Financial Studies, 14(1), 1–27. http://doi.org/10.2139/ssrn.36313
  • Griffin, D., & Tversky, A. (1992). The weighing of evidence and the determinants of confidence. Cognitive Psychology, 24(3), 411–435. http://doi.org/10.1016/0010-0285(92)90013-R
  • Kahneman, D., & Riepe, M. W. (1998). Aspects of investor psychology. The Journal of Portfolio Management, 24(4), 52-65. doi: 10.3905/jpm.1998.409643
  • Kyle, A. S., & Wang, F. A. (1997). Speculation Duopoly with Agreement to Disagree : Can Overconfidence Survive the Market Test? Journal of Finance, 52(5), 2073–2090. http://doi.org/10.2307/2329474
  • Lintner, J. (1965). The valuation of risk assets and the selection of risky investments in stock portfolios and capital budgets. The review of economics and statistics, 13-37. http://doi.org/10.2307/1924119
  • Lintner, J. (1969). The aggregation of investor's diverse judgments and preferences in purely competitive security markets. Journal of Financial and Quantitative Analysis, 4(04), 347-400. doi:10.2307/2330056.
  • Long, J. B. De, Shleifer, A., Summers, L. H., & Waldmann, R. J. (1991). The Survival of Noise Traders in Financial Markets. The Journal of Business, 64(1), 1. http://doi.org/10.1086/296523
  • Manski, C. F. (2004). Measuring expectations. Econometrica, 72(5), 1329–1376. http://doi.org/10.1111/j.1468-0262.2004.00537.x
  • Nofsinger, J. R. (2010). The psychology of investing. Pearson Prentice Hall.,isbn: 0-13-611703, Fourth edition
  • Odean, T. (1998). Volume , Volatility , Price , and Profit When All Traders Are Above Average. The Journal of Finance, 53(6), 1887–1934. http://doi.org/10.1111/0022-1082.00078
  • Rothman, A. J., & Hardin, C. D. (1997). Differential use of the availability heuristic in social judgment. Personality and Social Psychology Bulletin,23(2), 123-138.
  • Rublin, Lauren R.,(1997, 23 Haziran). Another chance, Barron’s Magazine
  • Sharpe, W. F. (1964). Capital Asset Prices: A Theory of Market Equilibrium under Conditions of Risk. The Journal of Finance, 19(3), 425–442. http://doi.org/10.2307/2329297
  • Sharpe, W. F. (1970). Portfolio theory and capital markets. McGraw-Hill College.
  • Shefrin, H. (2002). Beyond greed and fear: Understanding behavioral finance and the psychology of investing. Oxford University Press.
  • Thaler, R. H. (1987). Anomalies: The January Effect. Journal of Economic Perspectives, 1(1), 197–201. http://doi.org/10.1257/jep.1.1.197
  • Tversky, A. & Kahneman, D. (1973). Availability: A heuristic of Judging Frequency and Probability. İçinde, D.Kahneman, P.Slovic and A.Tversky (1982). Judgement Under Uncertainity: Heuristics and Biases, Cambridge: Cambridge University Press, pp.1634, 1982 doi:10.1016/0010-0285(73)90033-9
  • Tversky, a, & Kahneman, D. (1974). Judgment under Uncertainty: Heuristics and Biases. Science (New York, N.Y.), 185(4157), 1124–1131. http://doi.org/10.1126/science.185.4157.1124
  • Vissing-Jorgensen, A. (2003). Perspectives on Behavioral Finance: Does “Irrationality” Disappear with Wealth? Evidence from Expectations and Actions. SSRN Electronic Journal (Vol. 18). http://doi.org/10.2139/ssrn.417421
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Details

Journal Section Articles
Authors

İbrahim Emre Karaa

Publication Date April 21, 2017
Published in Issue Year 2017 Volume: 24 Issue: 1

Cite

APA Karaa, İ. E. (2017). Yatırımcıların Hisse Getirisi Beklentileri Üzerinde Geçmişin Gölgesi: Geçmiş Ekstrapolasyonu. Yönetim Ve Ekonomi Dergisi, 24(1), 151-168. https://doi.org/10.18657/yonveek.307516