Hard-to-value stocks, behavioral biases, and informed trading

Alok Kumar

Research output: Contribution to journalArticlepeer-review

131 Scopus citations


This paper uses investor-level data to provide direct evidence for an intuitive but surprisingly untested proposition that investors make larger investment mistakes when valuation uncertainty is higher and stocks are more difficult to value. Using multiple measures of valuation uncertainty and multiple behavioral bias proxies, I show that individual investors exhibit stronger behavioral biases when stocks are harder to value and when market-level uncertainty is higher. I also find that informed trading intensity is higher among stocks where individual investors exhibit stronger behavioral biases. Collectively, these results indicate that uncertainty at both stock and market levels amplifies individual investors behavioral biases and that relatively better informed investors attempt to exploit those biases.

Original languageEnglish (US)
Pages (from-to)1375-1401
Number of pages27
JournalJournal of Financial and Quantitative Analysis
Issue number6
StatePublished - Dec 2009
Externally publishedYes

ASJC Scopus subject areas

  • Accounting
  • Finance
  • Economics and Econometrics


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