This study explores the role of investor sentiment in the pricing of a broad set of macro-related risk factors. Economic theory suggests that pervasive factors (such as TFP and consumption growth) should be priced in the cross-section of stock returns. However, when we form portfolios based directly on their exposure to macro factors, we find that portfolios with higher risk exposure do not ear...

This paper tests experiential learning as a debiasing tool against gambling behavior in South Africa. We implement a simple, interactive game that simulates the odds of winning the national lottery through dice rolling. Participants roll one and two dice until they obtain simultaneous sixes and are then informed that the odds of winning the jackpot is equivalent to rolling all sixes with nine d...

The literature nds that investors increase portfolio turnover following high returns, explaining it by either overcon dence or skilled trading. This paper develops a theoretical model and shows empirically that team-managed funds trade less after good performance than single-managed funds. The magnitude of this di erential increases with team size. Moreover, the change from singleto team-manage...

Article history: Received 5 August 2012 Accepted 26 August 2012 Available online 7 September 2012 This paper investigates the effect of house money on the risk taking behavior of individual investors. When gains are more substantial, individuals tend to take greater risk. The house money effect seems to decline over time because the propensity for risk taking following gains is diminished with ...

The actual data values ðx1i; x2i; . . . ; xki; yiÞ are not provided as input to the routine. Instead, input to the routine consists of: (i) The number of cases, n, on which the regression is based. (ii) The total number of variables, dependent and independent, in the regression, ðkþ 1Þ. (iii) The number of independent variables in the regression, k. (iv) The ðkþ 1Þ by ðkþ 1Þ matrix 1⁄2 ~ Sij of...

We explore the analyst earnings forecasts data to study the interactive effect between disagreement and underreact to earnings news on asset prices. We find that (1) changes in the mean of forecasted earnings as an underreaction measure positively predict future returns, that (2) changes in the standard deviation of forecasted earnings as a disagreement measure negatively predict future returns...

I evaluate the economic consequences of advisory misconduct by estimating the effect of publicly disclosed regulatory actions of mutual fund advisors on fund flows. Based on misconduct events from 2000-2013, I find a 5% reduction in fund flows to malfeasant advisors in one year following the misconduct. Further analysis using the 2001 SEC electronic filing mandate as a positive shock to miscond...

We prove that a subtle but substantial bias exists in a common measure of the conditional dependence of present outcomes on streaks of past outcomes in sequential data. The magnitude of this novel form of selection bias generally decreases as the sequence gets longer, but increases in streak length, and remains substantial for a range of sequence lengths often used in empirical work. We observe...

We propose and test the idea that investor perceptions exhibit volatility ‘after-effects’ whereby perceived volatility is distorted after prolonged exposure to extreme volatility levels. Using VIX to measure perceived volatility in S&P 500 stocks, we find evidence of significant perceptual distortions in the aftermath of volatility regimes, consistent with the after-effect theory and recent exp...

This paper studies the cross-sectional risk-return trade-off in the stock market. A fundamental principle in finance is the positive relation between risk and expected return, whereas recent empirical evidence suggests the opposite. We apply referencedependent preferences to shed light on this violation. Reference-dependent preferences (e.g., prospect theory) typically posit that when facing pr...