The Credit Crisis and De Nova Mimicking in Security Analysis

Mike Cudd, Marcelo Eduardo and Lloyd Roberts

Journal of Behavioral Finance, 2014, vol. 15, issue 4, 334-340

Abstract: The failure of the investment community in 2007 to foresee the systematic collapse of the credit default swap market significantly increased the complexity of security analysis and damaged the reputation of the security analyst community in general. submit that in response to the credit crisis, security analysts may have engaged in a de nova form of mimicking by increasing emphasis on general market factors and reducing emphasis on idiosyncratic factors in their valuations, driven by behavioral motives to achieve increased cost efficiency and avoid higher penalties for unfavorable outlier valuations. The result would be increased correlation among security valuations and therefore returns, and diminished benefits of diversification. We test this hypothesis by examining the patterns of security and portfolio returns surrounding the onset of the credit crisis in early 2007 and observe a significant postcrisis increase in the proportion of security and portfolio returns explained by market factors. The findings support the hypothesized shift in emphasis in security analyst valuation techniques, and provide results consistent with the hypothesized behavioral explanations.

Date: 2014
References: Add references at CitEc
Citations:

Downloads: (external link)
http://hdl.handle.net/10.1080/15427560.2014.968721 (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:taf:hbhfxx:v:15:y:2014:i:4:p:334-340

Ordering information: This journal article can be ordered from
http://www.tandfonline.com/pricing/journal/hbhf20

DOI: 10.1080/15427560.2014.968721

Access Statistics for this article

Journal of Behavioral Finance is currently edited by Brian Bruce

More articles in Journal of Behavioral Finance from Taylor & Francis Journals
Bibliographic data for series maintained by Chris Longhurst ().