 When Are Investors Rational?Saptarshi Mukherjee and Sankar De Journal of Behavioral Finance, 2019, vol. 20, issue 1, 1-18 Abstract: Taking our cue from certain recent advances in experimental psychology, the authors propose a plausible theory of conflict between rationality and inherent behavioral biases of investors. In this theory no investor is fully rational or fully behavioral at all times. An investor faces a continuum between behavioral and rational positions. A movement toward rationality is a choice; it is costly to be fully rational which requires serious mental calculations. On the other hand, there could be some benefits to rationality in special circumstances that compensate for the costs. Using a unique and extensive investor-level database, the authors show that the degree of nonrationality decreases as rational behavior becomes more attractive. In the empirical setting, the proxy for rational behavior is investor's use of private predisclosure information during earnings announcement periods, while the disposition effect they display serves as an estimate of their behavioral bias. The paper contributes to the existing literature in several dimensions. Date: 2019 Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:taf:hbhfxx:v:20:y:2019:i:1:p:1-18 Ordering information: This journal article can be ordered from DOI: 10.1080/15427560.2018.1443936 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 |
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