Two essays in behavioral finance
Abstract
In the first essay (Investor Target Price and Price drift), I study whether investors selling the asset if it reaches a "target price", can generate price drifts. Consistent with this conjecture, I find that after positive earnings surprises, the post-earnings announcement drift increases with my proxy of the fraction of shareholders whose target prices are exceeded by the current stock price. In the second essay (Resale Value and Security Prices), I test the simple proposition that investors tend to estimate assets' resale option value based on the past trend of disagreement; they extrapolate the trend too far into the future and, thus, systematically mis-calculate the resale option value. Consistent with this conjecture, the results suggest that stocks with high growth in Analyst Forecast Dispersion underperform stocks with low growth in Analyst Forecast Dispersion over the ensuing one, six, and twelve months. Specifically, a trading strategy that purchases stocks in the lowest Dispersion Growth decile and shorts stocks in the highest Dispersion Growth decile earns returns of 11.52 percent per year.
Degree
Ph.D.
Advisors
McConnell, Purdue University.
Subject Area
Finance|Economic theory
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