Overconfident Investors, Predictable Returns, and Excessive Trading

Kent Daniel and David Hirshleifer

No 21945, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: Individuals and asset managers trade aggressively, resulting in high volume in asset markets, even when such trading results in high risk and low net returns. Asset prices display patterns of predictability that are difficult to reconcile with rational expectations–based theories of price formation. This paper discusses how investor overconfidence can explain these and other stylized facts. We review the evidence from psychology and securities markets bearing upon overconfidence effects, and present a set of overconfidence based models that are consistent with this evidence.

JEL-codes: G02 G11 G12 G14 G2 Z23 Z33 (search for similar items in EconPapers)
Date: 2016-01
New Economics Papers: this item is included in nep-mst
Note: AP
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Citations: View citations in EconPapers (5)

Published as Kent Daniel & David Hirshleifer, 2015. "Overconfident Investors, Predictable Returns, and Excessive Trading," Journal of Economic Perspectives, American Economic Association, vol. 29(4), pages 61-88, Fall.

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Journal Article: Overconfident Investors, Predictable Returns, and Excessive Trading (2015)
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