The industrialisation process of a country is often plagued by a failure to coordinate firms’ investment decisions. Using the Global Games approach we can solve this coordination problem and eliminate the problem of multiple equilibria. We show how appropriate information provision enhances efficiency. We argue that subsidies may be a property of a signalling equilibrium to overcome credibility...

This study shows that the recent trajectory of a firm’s profits predicts future profitability and stock returns. The predictive information contained in the trend of profitability is not subsumed by the level of profitability, earnings momentum, or other well-known determinants of stock returns. The profit trend also predicts the earnings surprise one quarter later, and analyst forecast errors ...

In this paper empirical tests for the overreaction and underreaction hypothesis in the Brazilian stock market are presented. For these tests, due to the complexity of these phenomena, a new model based on the fuzzy set theory is proposed. It is shown that such model is strongly connected with two heuristics of behavioral finance: representativeness and anchoring. The proposed model is used to f...

We test the relationship between over-(under)reaction to news and the degree of surprise. Investors/bettors generally rely too heavily on prior beliefs and underreact, but sufficiently surprising information may cause overreaction due to the salience of the news. We use data from in-play soccer betting, where the arrival of information (goals) is well defined and the degree of surprise can be q...

Many stockholders irrationally believe that high recent market returns predict high future market returns. I argue that the presence of these extrapolative investors can help resolve the equity premium puzzle if the elasticity of intertemporal substitution (EIS) is greater than unity. Extrapolators’ overreaction to dividend news generates countercyclical expected returns. Rational investors res...