The conservatism bias in an emerging stock market: Evidence from Taiwan

Chen-Hui Wu, Chin-Shun Wu and Victor W. Liu

Pacific-Basin Finance Journal, 2009, vol. 17, issue 4, 494-505

Abstract: Behavioral theories predict that investors underreact to earnings announcements stemming from the conservatism bias and overreact to a string of earnings news due to representativeness heuristic. This paper thus examines trading strategies of buying past high EPS growth stocks and selling past low EPS growth stocks over 4 to 20 quarters. The results generally support conservative reactions in the medium-term horizon, but provide little support for the over-use of representativeness heuristic on the long-term horizon. Moreover, we find that investors react differently to the consistency sequences of the two extreme earnings growth portfolios.

Keywords: Behavioral; finance; Conservatism; bias; Representativeness; heuristic (search for similar items in EconPapers)
Date: 2009
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Citations: View citations in EconPapers (6)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:pacfin:v:17:y:2009:i:4:p:494-505

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