This doctoral dissertation addresses the biological and psychological components of financial decision-making for individuals. As such, it directly examines intrinsic human traits that are related to financial performance, rather than following the standard approach of inferring said traits from aggregate market data. Specifically, this dissertation examines the relation of personality traits, testosterone levels, and cortisol levels to financial choices and outcome under short-term (trading) and long-term (investing) investment horizons. Subjects are recruited from advanced courses in finance at Florida International University. During the course of a semester (fourteen weeks) they complete a portfolio formation and rebalancing task, and answer a personality questionnaire. Additionally, subjects complete a series of trading simulations during the early morning of a preset date, and provide saliva samples. The saliva samples are analyzed for levels of testosterone and cortisol at a University lab facility. The relation of personality scores, testosterone levels, and cortisol levels to financial choices and outcomes is analyzed via linear regressions and Student’s t-tests. The results show that personality factors associated with detrimental life quality, such as paranoia, are related to long-term investment decisions associated with increased portfolio risk and return. Additionally, the levels of testosterone and cortisol play a significant role in initial portfolio formation decisions, but not in subsequent portfolio allocation decisions. As such, the results show that hormone levels contribute to initial long-term investment choices, but personality traits play a much greater role in portfolio maintenance. Alternatively, the results show that testosterone and cortisol levels play a significant role in many aspects of short-term investment, including the decision to buy or to sell, and timing preferences. Overall, the results show that hormone levels and personality traits play significant and distinctive roles in many aspects of financial decision-making. Therefore, this dissertation provides important implications for the practice and the study of finance, including information that could be used to make more rational financial choices, and to develop financial models with more realistic assumptions about investor behavior.

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<p>In the first chapter, I conduct an eye-tracking experiment to measure how subjects allocate attention over a price chart while they predict future stock returns. I confirm that the attention allocation reflects how subjects form expectations from past price information. The measure of expectation based on eye-tracking quantitatively fits the actual forecasts submitted by subjects. Easily recognizable patterns in data receive disproportionately more attention: Subjects spend much more time reading recent as well as extreme trends and price levels. Such heuristics in information acquisition are heterogeneous across subjects and lead to inferior forecast precision. Overall, the results provide direct evidence for investor beliefs hypothesized by theories of return extrapolation. </p> <p><br></p> <p>In the second chapter, co-authored by Sergey Chernenko and Huseyin Gulen, we use data on scrip dividends, which give shareholders the option to receive additional shares instead of cash dividends, to investigate how investors form expectations of future returns. Shareholders are more likely to elect to receive dividends in shares when recent past returns are higher, especially when returns are positive and volatile. Actions based on extrapolative beliefs are stronger in small firms, growth firms, and firms with low institutional ownership. Finally, take-up rates of scrip dividends negatively predict both short- and long-run future returns.</p>

The dissertation consists of two essays. In the first essay, we measure herding by institutional investors in the new economy (internet) stocks during 1998-2001 by examining the changes in the quarterly institutional holdings of internet stocks relative to an average stock. More than 95% of the stocks that are examined are listed on NASDAQ. The second essay attempts to detect intra-day herding using two new measures in an average NYSE stock during 1998-2001. In the second essay, rather than asking whether institutional investors herd in a specific segment of the market, we endeavor to ask if herding occurs in an average stock across all categories of investors. The first essay analyzes herding in one of the largest bull runs in the history of U.S. equity markets. Instead of providing a corrective stabilizing force, banks, insurance firms, investment companies, investment advisors, university endowments, hedge funds, and internally managed pension funds participated in herds in the rise and to a lesser extent in the fall of new economy stocks. In contrast to previous research, we find strong evidence of herding by all categories of institutional investors across stocks of all sizes of companies, including the stocks of large companies, which are their preferred holdings. We present evidence that institutional investors herded into all performance categories of new economy stocks, and thus the documented herding cannot be explained by simple momentum-based trading. Institutional investors' buying exerted upward price pressure, and the reversal of excess returns in the subsequent quarter provides evidence that the herding was destabilizing and not based on information. The second essay attempts to detect herding in financial markets using a set of two methodologies based on runs test and dependence between interarrival trade times. Our first and the most important finding is that markets function efficiently and show no evidence of any meaningful herding in general. Second, herding seems to be confined to very small subset of small stocks. Third, dispersion of opinion among investors does not have much of impact on herding. Fourth, analysts' recommendations do not contribute to herding. Last, the limited amount of herding on price increase days seems to be destabilizing but on the price decrease days, the herding helps impound fundamental information into security prices thus making markets more efficient. Our results are consistent with Avery and Zemsky (1998) prediction that flexible financial asset prices prevent herding from arising. The seemingly contradictory results of the two essays can be reconciled based on the different sample of stocks, and the different methodologies of the two essays which are designed to detect different types of herding. In the first essay, herding is measured for NASDAQ-listed (primarily) internet stocks relative to an average stock, while the second essay documents herding for an average stock. In the first essay, we document herding in more volatile internet stocks, but we do not find any evidence of herding in more established NYSE stocks. The first essay examines herding by institutional investors, while the second essay examines herding, irrespective of the investor type. Consequently, in the first essay, we find that a subset of investors herd but in the second essay market as a whole does not exhibit any herding. Moreover, the first essay measures herding by examining the quarterly institutional holdings of internet stocks, while the second essay measures herding by examining the intra-day trading patterns for stocks. This suggests that it takes a while for investors to find out what others are doing leading to herding at quarterly interval but no herding is observed at intra-day level. The evidence presented in the two essays suggests that while institutional investors herded in the internet stocks during 1998-2001, there was very little herding by all investors in an average stock during this period. / Ph. D.

Purpose: The purpose of this paper is to examine if underlying psychological factors have an impact on shareholders' investment decisions and if forecasting quarterly reports have an impact on shareholders' investment decisions. Methods: The study combines an application of two different methods, survey and an event study. The purpose of the survey was to investigate if psychological factors interfere with shareholders' investment decisions. The Event study is designed to measure equity market reaction to the forecasts and if any changes occurred in the companies' share price. Theoretical: This study is based on established theories in the fields of behavioral finance, the efficient market hypothesis and the economic man. Conlusion: Underlying psychological factors have a certain impact on the shareholders' investment decisions. Both events study and survey, in particularly the part of the survey, which includes forecasts, showed that the shareholders are not affected by the forecasts published by market analysts.

Bakgrund Richard J. Rendleman, Charles P. Jones &amp; Henry A. Latané påvisade i en studie år 1982 med hjälp av en regressionsmodell att tidsförskjutningar i prissättningen av aktier existerat på den amerikanska marknaden vid kvartalsresultat som avvek från en trend. Det inspirerade oss att med samma metod undersöka om liknande tidsförskjutningar även existerat på den svenska marknaden. Syfte Syftet med denna uppsats är att empiriskt studera om det existerat tidsförskjutna aktieprisjusteringar kvartalsvis, baserade på standardiserade oförväntade kvartalsresultat respektive standardiserade oförväntade kassaflöden, på den svenska aktiemarknaden under åren 2004-2006. Om sådana tidsförskjutningar av prisbildning existerat avser vi även att diskutera dem utifrån teorier om behavioral finance. Genomförande Med linjär regression estimeras EPS respektive kassaflöden utifrån historiska data. Estimeringarnas avvikelse från rapporterade data jämförs sedan med aktiekursutveckling för att se om samband föreligger mellan storleken på avvikelserna och efterföljande tidsförskjutning. Resultat Under tidsperioden 2004-2006 påvisar vi tidsförskjutningar med standardiserade oförväntade kvartalsresultat men inte med standardiserade oförväntade kassaflöden. / Background Richard J. Rendleman, Charles P. Jones &amp; Henry A. Latané presented a study in 1982 where they showed anomalies on the American stock exchange when using standardized unexpected earnings. Their result inspired us to do a similar research on the Swedish stock exchange. Purpose The purpose of this study is to do an empirical study of the existence of drifts in stock price adjustments, based on standardized unexpected earnings and standardized unexpected cash-flows on the Swedish stock exchange during the years 2004-2006. If anomalies are discovered we intend to discuss them in terms of behavioral finance. Implementation With a linear regression we estimate EPS respective cash-flow from historical data. The deviations from quarterly reported data are compared with the development of stock-prices. Conclusion During the time period 2004-2006 we show that anomalies have existed when standardized unexpected earnings are applied and that no anomalies can be found with standardized unexpected cash-flows.

Sammanfattning Uppsatsens titel: 2013 – Året det vårades för blankning Datum: 2013-05-21 Uppsats nivå: Kandidatuppsats i Företagsekonomi (61-90 hp) Författare: Erik Alvarado och Billy BengtssonHandledare: Sven-Ola CarlssonExaminator: Marita Blomkvist Nyckelord: Blankning, Förbud, Regleringar, Effektiva marknadsteorin, Behavioral finance, Strategi Syfte: Vårt syfte med uppsatsen är att förstå och analysera hur mäklarna samtförvaltare på svenska finansiella institut arbetar med blankning gentemotsina kunder idag. Problemformulering: Hur arbetar mäklare och förvaltare på svenska finansiella institut medblankningsaffärer åt sina kunder?Metod: Metodvalet föll på en kvalitativ studie med en induktiv ansats. Den datasom utgör empirin har samlats in genom besöks- och telefonintervjuer. Teori: I november 2012 valde regeringen att gå EU:s linje och börja följa derasförordning angående regleringar mot blankning. Detta ställer krav på attFinansinspektionen publicerar gårdagen genomförda blankningsaffärermorgonen efter. Något som lett till en mediedebatt kring att intresset förblankning kan öka, då investerare nu kan ta rygg på andra blankare.Blankning kan vara ett populärt investeringsalternativ utifrån ett flertalstrategier medan anledningarna till att blanka kan vara många. Antingen blankar investerare utifrån rationella värderingar och tillgången på informationsom finns på en effektiv marknad. Vidare kan du utgå ifrån känsloinpulser,något som kan kopplas till behavioral finance-perspektivet. Empiri: Primärdata har samlats in från fyra svenska finansiella institut: AvanzaBank, Handelsbanken, Skandinaviska Enskilda Banken och Simplicity AB. Resultat: Intresset för blankning bland de finansiella institutens kunder är relativtsvalt, något som främst beror på en lång teknisk process och höga kostnader.En slutsats som ligger helt i linje med den ledande teorin kring regleringaroch förbud mot blankning, nämligen Diamond-Verrecchia hypothesis. / Abstract Title: 2013 – Sweden, it’s time for short-selling! Date: 2013-05-21 Level: Bachelor Thesis in Business Administration (61-90 hp) Authors: Erik Alvarado and Billy BengtssonAdvisor: Sven-Ola CarlssonExaminer: Marita Blomkvist Keywords: Short-selling, Ban, Regulations, Efficient-market hypothesis, Behavioralfinance, Strategy Purpose: Our purpose with the thesis is to understand and analyze how brokers andequity managers in Swedish financial institutions working with shortsellingtowards their customers.Research question: How do brokers and equity managers at Swedish financial institutionswork with short-selling for their customers? Methodology: The thesis is based on a qualitative methodology with an inductive approach.The primary data has been collected through face-to-face interviewsas well over telephone. Theory: Since November 2012 the Swedish government is following the currentEU regulation against short-selling. The EU regulation requires that completedshort sales are published the next day on the Swedish comparison tothe U.S: Securities and Exchange Commission (SEC), Finansinspektionen.The new regulation his risen a debate in media, since investors now canfollow the published short sales. Short-selling can be a popular alternativefor investors, since there are many strategies that are including shortselling.However, the reasons for investors to short-sell can be many. Either the investors’ decision is rationally based on the available informationon the efficient market or they base their decisions on feeling. Financialdecision based on feelings can be explained by behavioral finance. Empiric: The primary data representing the empirical framework has been collectedfrom four Swedish financial institutions: Avanza Bank, Handelsbanken,Skandinaviska Enskilda Banken and Simplicity AB. Result: At the moment short-selling is not the most popular choice for investorswho are interested in going short. The short-selling process is at the momenttechnical difficult and costly for the investors and financial institutions.The result is in line with the leading theory of short-selling regulations,the Diamond-Verrecchia hypothesis.

Bakgrund: Småbolagseffekten påvisades först av Banz (1981) och Reinganum (1981) som kom fram tillatt småbolag genererade högre avkastning än stora bolag under samma period. Effekten syntes även stabil över tiden vilket ej är förenligt med Capital Asset Pricing Model (CAPM) och den effektiva marknadshypotesen (EMH). Syfte: Syftet med denna uppsats är att undersöka om det finns någon påvisbar småbolagseffekt påNasdaq OMX Stockholm och huruvida den i så fall har varit konstant under studieperioden. Vidare syftar studien till att undersöka huruvida relativvärdering av småbolagsaktier framgångsrikt kan användas för att generera överavkastning. Metod: Studien baseras på en kvantitativ metodansats med ett deduktivt angreppssätt. Behövd datasamlas in och sammanställs för att sedan användas för att skapa portföljer som studeras och analyseras baserat på prestation. Slutsats: Studien  har  ej  kunnat  påvisa  en  småbolagseffekt  under  hela  studieperioden.  Underhögkonjunktur har dock en småbolagseffekt kunnat påvisas. Vidare har studien kunnat visa att relativvärdering av småbolagsaktier genererar både absolut och riskjusterad överavkastning jämfört med studiens småbolagsportfölj och marknadsindex (AFGX). Så kallade värdebolag, det vill säga bolag med låga värden på P/BV-, P/E- och P/S-talen, är de som genererat högstavkastning. / Background: The small firm-effect was first demonstrated by Banz (1981) and Reinganum (1981) who found that small caps generated higher returns than large companies during the same period. The effect also seemed stable over time, which is not compatible with the Capital Asset Pricing Model (CAPM) and the efficient market hypothesis (EMH). Aim: The purpose of this study is to examine whether there is any evidence of a small firm-effect on Nasdaq OMX Stockholm and whether it in such case has been constant over the study period. Furthermore, the study aims to examine whether relative valuation of small caps can be successfully used to generate excess returns. Methodology: The study is based on a quantitative method with a deductive approach. The required data is collected and compiled and then used to create portfolios which are then studied and analyzed based on their respective performance. Results: The study has not been able to detect a small firm-effect throughout the study period. During the boom, however, a small firm-effect could be detected. Furthermore, this study has shown that relative valuation of small caps generates both absolute and risk adjusted excess returns compared to the market index (AFGX). So called value stocks, companies with low values on the P/BV, P/E and P/S multiples, are the ones that generated the highest returns.

<p>Bakgrund</p><p>Richard J. Rendleman, Charles P. Jones & Henry A. Latané påvisade i en studie år 1982 med hjälp av en regressionsmodell att tidsförskjutningar i prissättningen av aktier existerat på den amerikanska marknaden vid kvartalsresultat som avvek från en trend. Det inspirerade oss att med samma metod undersöka om liknande tidsförskjutningar även existerat på den svenska marknaden.</p><p>Syfte</p><p>Syftet med denna uppsats är att empiriskt studera om det existerat tidsförskjutna aktieprisjusteringar kvartalsvis, baserade på standardiserade oförväntade kvartalsresultat respektive standardiserade oförväntade kassaflöden, på den svenska aktiemarknaden under åren 2004-2006. Om sådana tidsförskjutningar av prisbildning existerat avser vi även att diskutera dem utifrån teorier om behavioral finance.</p><p>Genomförande</p><p>Med linjär regression estimeras EPS respektive kassaflöden utifrån historiska data. Estimeringarnas avvikelse från rapporterade data jämförs sedan med aktiekursutveckling för att se om samband föreligger mellan storleken på avvikelserna och efterföljande tidsförskjutning.</p><p>Resultat</p><p>Under tidsperioden 2004-2006 påvisar vi tidsförskjutningar med standardiserade oförväntade kvartalsresultat men inte med standardiserade oförväntade kassaflöden.</p> / <p>Background</p><p>Richard J. Rendleman, Charles P. Jones & Henry A. Latané presented a study in 1982 where they showed anomalies on the American stock exchange when using standardized unexpected earnings. Their result inspired us to do a similar research on the Swedish stock exchange. </p><p>Purpose</p><p>The purpose of this study is to do an empirical study of the existence of drifts in stock price adjustments, based on standardized unexpected earnings and standardized unexpected cash-flows on the Swedish stock exchange during the years 2004-2006. If anomalies are discovered we intend to discuss them in terms of behavioral finance. </p><p>Implementation</p><p>With a linear regression we estimate EPS respective cash-flow from historical data. The deviations from quarterly reported data are compared with the development of stock-prices. </p><p>Conclusion</p><p>During the time period 2004-2006 we show that anomalies have existed when standardized unexpected earnings are applied and that no anomalies can be found with standardized unexpected cash-flows.</p>

Purpose The purpose of this study is to investigate whether abnormal return patterns can occur on different share indices, as a result of the outcome in national team matches. The subordinary aim is to investigate whether there are differences between the three share indices, (small-, mid- and large cap) depending on the match category and how it relates regarding the five countries in the study. Method This study has a positivistic and deductive approach, using a modified event study methodology. The event period is one day after the event. For each nation, year and share index, different estimation periods have been created. The study comprises 760 national team football matches and is investigating how each different share index is affected by match outcomes in championship matches, qualifying matches and friendlies. Results Upon compilation of all 760 matches, the result of this study shows a statistically significant impact on two of the three possible match outcomes, regarding small cap index. Furthermore the result also shows a connection between friendly matches and small cap index. The match categories championship matches and qualifying matches demonstrates no connection to the three diffrent kind of share indices. Regarding the different nations, Spain and their small- and large cap index shows the most significant connection between the match outcome and abnormal return. Conclusions The small cap share index is basically the only index that is affected by the all the matches that is involved in this study (after a victory or a loss). The magnitude of a match does not seem to have a greater influence on investor rationality. Over all, the match outcome draw does not lead to negative abnormal return. Of this studys five surveyed countries (England, France, Spain, Sweden and Germany), the english and german share indicies seems to be least likley to be affected by the outcome in national team football matches.