Does Overconfidence Bias Explain Volatility During the Global Financial Crisis?

Mouna Abbes ()

Transition Studies Review, 2013, vol. 19, issue 3, 291-312

Abstract: This paper explores the problem of the current global financial crisis, using a behavioral perspective. Particularly, the main objective of this paper is to test whether overconfidence bias can explain excessive volatility witnessed during global financial crisis in developed and emerging equity markets. Empirical results of EGARCH estimated models show an asymmetric effect of volatility for all equity market indexes. The relation between excessive trading volume of overconfident investors and excessive prices volatility is then estimated. The results indicate that conditional volatility is positively related to trading volume caused by overconfidence bias. This finding provides strong statistical support to the presence of overconfidence bias among investors in developed and emerging stocks markets. This cognitive bias contributes to the exceptional financial instability that erupted in 2008. However, during the subprime financial crisis period overconfidence bias cannot explain volatility because of the loss of confidence by investors in financial markets. Copyright Springer-Verlag 2013

Keywords: Global financial crisis; Overconfidence; Behavioral finance; Volatility; EGARCH; G01; G12; G15 (search for similar items in EconPapers)
Date: 2013
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (12)

Downloads: (external link)
http://hdl.handle.net/10.1007/s11300-012-0234-6 (text/html)
Access to full text is restricted to subscribers.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:spr:trstrv:v:19:y:2013:i:3:p:291-312

Ordering information: This journal article can be ordered from
http://www.springer. ... ration/journal/11300

DOI: 10.1007/s11300-012-0234-6

Access Statistics for this article

Transition Studies Review is currently edited by G. Dominese

More articles in Transition Studies Review from Springer, Central Eastern European University Network (CEEUN)
Bibliographic data for series maintained by Sonal Shukla () and Springer Nature Abstracting and Indexing ().