Abstract
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 language | English (US) |
|---|---|
| Pages (from-to) | 1375-1401 |
| Number of pages | 27 |
| Journal | Journal of Financial and Quantitative Analysis |
| Volume | 44 |
| Issue number | 6 |
| DOIs | |
| State | Published - Dec 2009 |
| Externally published | Yes |
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ASJC Scopus subject areas
- Finance
- Accounting
- Economics and Econometrics
Cite this
Hard-to-value stocks, behavioral biases, and informed trading. / Kumar, Alok.
In: Journal of Financial and Quantitative Analysis, Vol. 44, No. 6, 12.2009, p. 1375-1401.Research output: Contribution to journal › Article
}
TY - JOUR
T1 - Hard-to-value stocks, behavioral biases, and informed trading
AU - Kumar, Alok
PY - 2009/12
Y1 - 2009/12
N2 - 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.
AB - 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.
UR - http://www.scopus.com/inward/record.url?scp=68249150008&partnerID=8YFLogxK
UR - http://www.scopus.com/inward/citedby.url?scp=68249150008&partnerID=8YFLogxK
U2 - 10.1017/S0022109009990342
DO - 10.1017/S0022109009990342
M3 - Article
VL - 44
SP - 1375
EP - 1401
JO - Journal of Financial and Quantitative Analysis
JF - Journal of Financial and Quantitative Analysis
SN - 0022-1090
IS - 6
ER -