The dynamics of overconfidence: Evidence from stock market forecasters

Richard Deaves (), Erik Lüders () and Michael Schröder
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Richard Deaves: McMaster University
Erik Lüders: Pinehill Capital and Laval University
Michael Schröder: Center for European Economic Research (ZEW)

No 05-10, CoFE Discussion Paper from Center of Finance and Econometrics, University of Konstanz

Abstract: As a group, market forecasters are egregiously overconfident. In conformity to the dynamic model of overconfidence of Gervais and Odean (2001), successful forecasters become more overconfident. What’s more, more experienced forecasters have “learned to be overconfident,” and hence are more susceptible to this behavioral flaw than their less experienced peers. It is not just individuals who are affected. Markets also become more overconfident when market returns have been high.

New Economics Papers: this item is included in nep-cbe, nep-cfn, nep-fmk and nep-for
Date: 2005-10-07
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