Informational overconfidence in return prediction – More properties

Doron Sonsino () and Eran Regev

Journal of Economic Psychology, 2013, vol. 39, issue C, 72-84

Abstract: A field experiment revealed 3 forms of unrealistic optimism in skilled investors’ interval predictions of future stock returns. The judgmental intervals were about 50% shorter than realized spreads in recent 3–6months histories, suggesting that “underestimation of volatility” persists past the financial crisis. The intervals, however, rapidly widened as predictions diverged from zero, and a complementary technical-forecasting experiment showed that the increased spread pattern emerges even when volatility is accounted. The results support “anchoring with noisy monotone adjustments” and suggest that overconfidence hazards may instinctively attenuate when expectations get extreme.

Keywords: D84; C53; C93; 2240; 2340; Informational overconfidence; Optimism; Perceived volatility; Anchoring and adjustment (search for similar items in EconPapers)
Date: 2013
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Citations: View citations in EconPapers (9)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:joepsy:v:39:y:2013:i:c:p:72-84

DOI: 10.1016/j.joep.2013.06.006

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