Information environment and investor behavior

Yen-Cheng Chang and Hung-Wen Cheng

Journal of Banking & Finance, 2015, vol. 59, issue C, 250-264

Abstract: Market reactions to non-fundamental news (or no-news) reverse for extreme firm information environments. A one percentage increase in intangible returns for small firms (large firms) lead to a 2.33% decrease (0.70% increase) in monthly returns over the next 12months. The results are robust to firm characteristics adjustments, alternative measures of firm information environment and private information, idiosyncratic risk, and microstructure effects. The results are consistent with the cross-sectional findings of confirmation bias, where investors show stronger bias when the information environment is rich. We derive a model with confirmation bias that further explains the cross-sectional momentum pattern for the majority of firms in the market.

Keywords: Behavioral finance; Confirmation bias; Intangible returns; Momentum (search for similar items in EconPapers)
JEL-codes: D83 G14 (search for similar items in EconPapers)
Date: 2015
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (6)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jbfina:v:59:y:2015:i:c:p:250-264

DOI: 10.1016/j.jbankfin.2015.06.013

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