Overconfident investors, predictable returns, and excessive trading

David Hirshleifer and Kent Daniel

MPRA Paper from University Library of Munich, Germany

Abstract: Individuals and asset managers trade aggressively, resulting in high volume in asset markets, even when such trading results in high risk and low net returns. Asset prices display patterns of predictability that are difficult to reconcile with rational expectations–based theories of price formation. This paper discusses how investor overconfidence can explain these and other stylized facts. We review the evidence from psychology and securities markets bearing upon overconfidence effects, and present a set of overconfidence-based models that are consistent with this evidence.

Keywords: investor overconfidence; aggressive trading; return predictability; trading volume; return momentum; return reversal (search for similar items in EconPapers)
JEL-codes: D03 D1 D14 D84 G1 G11 G12 G14 (search for similar items in EconPapers)
Date: 2015-10-20
New Economics Papers: this item is included in nep-cbe
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (69)

Published in Journal of Economic Perspectives 4.29(2015): pp. 61-88

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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:69002

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