Do Teams Alleviate or Exacerbate the Extrapolation Bias in the Stock Market?

Ricardo Barahona, Stefano Cassella and Kristy A. E. Jansen
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Stefano Cassella: Tilburg University
Kristy A. E. Jansen: USC Marshall School of Business and de Nederlandsche Bank

No 2335, Working Papers from Banco de España

Abstract: We investigate how teams impact return extrapolation, a bias in belief formation which is pervasive at the individual level and crucial to behavioral asset-pricing models. Using a sample of US equity money managers and a within-subject design, we find that teams attenuate their own members’ extrapolation bias by 75%. This reduction is not due to learning or differences in compensation, workload, or investment objectives between solo-managed and team-managed funds. Rather, we provide supportive evidence that team members engaging in deeper cognitive reflection can explain the bias reduction.

Keywords: expectation formation; extrapolation; heuristics; teams (search for similar items in EconPapers)
JEL-codes: D91 G23 G41 (search for similar items in EconPapers)
Pages: 109 pages
Date: 2023-11
New Economics Papers: this item is included in nep-exp and nep-fmk
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Persistent link: https://EconPapers.repec.org/RePEc:bde:wpaper:2335

DOI: 10.53479/35522

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