<div>In models of stock returns where investors with extrapolative beliefs on future stocks (e.g., Barberis and Shleifer (2003)), price momentum and the value premium both arise naturally. The key insight from these models is that, the strength and timing of these cross- sectional return anomalies will be conditional on the degree of extrapolative bias. More specifically, higher (lower) degree of over-extrapolation leading to stronger value premium (momentum).</div><div> Using the time-series variation in the degree of over-extrapolation documented in Cassella and Gulen (2018), I first directly test the hypothesis that both value and momentum stem from over-extrapolation in financial markets. I find that the average momentum return is 1.00% (0.10%) per month when the degree of over-extrapolation is low (high), whereas the average value premium is 0.51% (1.29%) per month following low (high) levels of over- extrapolation.</div><div> Furthermore, I extend the model in Barberis and Shleifer (2003) by having both within- equity extrapolators and across asset-class extrapolator. The extension is based on the idea that when extrapolators move capital in and out of the equity market, they disproportionately buy growth stocks in good times and sell value stocks in bad times. The model predicts that the cross-sectional value premium should be stronger following states of large market- wide over- or undervaluation due to additional extrapolative demand to buy or sell. This prediction is tested empirically and I find strong support for it. The value premium is 3.42% per month following market-wide undervaluation and 1.70% per month following market overvaluation. In the remainder 60% to 80% of the sample, when the market is neither significantly over or under-valued, there is no significant value premium in a monthly horizon and the value premium is only 0.54% per month in an annual horizon. I provide some suggestive evidence regarding portfolio return dynamics, investor expectation errors and fund flows that supports the extrapolative demand channel. Overall, this work examines more closely at the effect of extrapolative beliefs on the cross-section of asset prices and offers some support for extrapolation-based asset-pricing theories.</div><div><br></div>

Thesis advisor: Thomas Chemmanur / Thesis advisor: David Solomon / This document comprises three essays regarding actual share repurchases. In Chapter 1, I show that external pressure in the form of equity analysts asking questions about a firm's actual repurchases can lead firms to more extensively follow through on their recently announced open market share repurchase programs. Such a phenomenon cannot be explained by mere firm characteristics. Instead, only analysts' questions that are shorter, more focused on share repurchases, and blunter in language appear to drive firms for greater follow-throughs. The second essay, detailed in Chapter 2, presents another motivation for firms to actually buy back shares under their active open market share repurchase programs. Specifically, firms with higher accounting quality will likely repurchase more shares to signal their accounting superiority after another firm operating in the same product market issues a financial restatement. As a result, the repurchasing firms separate from the pooling equilibrium with lower accounting quality firms and thus incur lower accounting-related litigation risks. Finally, in the third essay, located in Chapter 3, we compare cash dividends with share repurchases. Firms with greater heterogeneity in beliefs between insiders and outsiders, and among outside equity holders more likely prefer share repurchases to cash dividends for payout. Importantly, this finding can partially explain the disappearing dividend puzzle where rising heterogeneity in beliefs in the economy may have contributed to the substitution of cash dividends with share repurchases in the past two decades. / Thesis (PhD) — Boston College, 2023. / Submitted to: Boston College. Carroll School of Management. / Discipline: Finance.

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Thesis advisor: Rosen Valchev / I study how economic conditions and strategic incentives affect belief formation of rational agents with a limited information processing capacity. I study the impact of cognitive and information frictions on individual risk taking, investment and portfolio choice, and their implications on aggregate macroeconomic fluctuations. In my first chapter "Rational Overoptimism and Moral hazard in Credit Booms" I develop a framework in which over optimism in credit booms originates from rational decisions of managers. Because of moral hazard, managers pay too little attention to the aggregate conditions that generate risk, leading them to over borrow and over invest during booms. Periods of low risk premia predict higher default rates, higher probability of crises and systematic negative banks excess returns, in line with existing evidence. I document a negative relation between the convexity of CEO's compensation and their information on a larger sample of firms, which is consistent with my theory. My model implies that compensation regulation can play an important role in macro prudential policy. In my second chapter "Biased Surveys" Rosen Valchev and I improve on the standard tests for the FIRE hypothesis by allowing for both public and private information, and find new interesting results. First, we propose a new empirical strategy that can accommodate this richer information structure, and find that the true degree of information rigidity is about a third higher than previously estimated. Second, we find that individual forecasts over-react to private information but under-react to public information. We show that this is consistent with a theory of strategic diversification incentives in forecast reporting, where forecasters are rational but report a biased measure of their true expectations. This has two effects. First, it generates what looks like behavioral “over-reaction” in expectations, and second biases the information rigidity estimate further downward. Overall, our results caution against the use of survey of forecasts as a direct measure of expectations, and suggest that the true underlying beliefs are rational, but suffer from a much larger degree of imperfect information than previously thought. This has particularly profound implications for monetary policy, where inflation expectations play a key role. I explore further how economic incentives shape beliefs in my third chapter "International Trade and Portfolio Diversification". I show that information choice can explain the puzzling positive relation between bilateral investment and trade across countries. I present a model of endogenous information with both investment in assets and income from trade. While standard model of risk-hedging would require agents to invest in non-trading countries to diversify income risk, I show that limited information capacity and preferences for early resolution of uncertainty reverse this result. The intuition is that investors collect more information on trading partners to reduce income uncertainty, and therefore perceive their equity as less risky. I find that allowing for information choice reduces the role of risk hedging on portfolio decisions. I test my model’s implied relation between trade and attention in the data and find robust empirical support. / Thesis (PhD) — Boston College, 2022. / Submitted to: Boston College. Graduate School of Arts and Sciences. / Discipline: Economics.

Bakgrund: I takt med att antalet miljonärer ökat i Sverige har antalet private banking-kunder ökat. Private bankings främsta syfte är att genom rådgivning uppnå kundens finansiella mål, utan att falla i psykologiska fallgropar. För att kunna upprätthålla en effektiv rådgivning krävs en djupare kunskap om förekomsten av psykologiska fallgropar och deras påverkan på rådgivningsprocessen inom private banking.Syfte: Syftet med uppsatsen är att kartlägga private banking rådgivares kännedom och strategier inom rådgivningsprocessen med fokus på problematiken med anchoring och framing. Uppsatsen syftar även till att, med utgångspunkt i ämnets relevanta teorier och tidigare forskning, analysera och utvärdera hanteringen av anchoring och framing i rådgivningsprocessen inom private banking.Genomförande: Uppsatsens explorativa tillvägagångssätt och kvalitativa ansats kombinerar en litteraturstudie med intervjuer och tester med tio verksamma rådgivare inom private banking. Den insamlade empirin utgör grunden för kartläggningen av private banking rådgivarnas kännedom och strategier i rådgivningsprocessen kopplat till problematiken kring anchoring och framing. En kartläggning som tillsammans med ämnets relevanta teorier och tidigare forskning analyseras och utvärderas för att addera mervärde till rådgivningsprocessen.Slutsats: Anchoring och framing förekommer inom rådgivningsprocessens samtliga delar och hanteras omedvetet av private banking rådgivarna. Rådgivarna har en låg ingående kännedom om fenomenen anchoring och framing men banken har ett intresse i att fördjupa sin kunskap inom forskningsområdet. Anchoring och framing är inte ett problem av avgörande bemärkelse vid rådgivning inom private banking. / Background: As the number of millionaires increased in Sweden, the number of private banking clients increased. The primary purpose within private banking is to achieve the client's financial goals through advising, without falling into psychological biases. In order to maintain an effective consulting requires a deeper knowledge of the existence of the psychological biases and their impact on the consulting process in private banking.Aim: The purpose of this thesis is to identify private banking advisers knowledge and strategies in the consulting process with a focus on the problematics of anchoring and framing. The thesis also aim to, based on relevant theories and previous research, analyze and evaluate the handling of anchoring and framing in the consulting process in private banking.Completion: The thesis exploratory and qualitative approach combines a literature review with interviews and tests with ten active advisers within private banking. The collected empirical data form the chart of private banking advisers knowledge and strategies in the consulting process with focus on the problematics of anchoring and framing. A chart which together with relevant theories and previous research is analyzed and evaluated in order to add value to the consulting process.Conclusion: Anchoring and framing exists in all parts of the consulting process and the private banking advisers handled their existence unconsciously. The advisers have a low ingoing knowledge of the phenomena anchoring and framing, but the bank has an interest to deepen their knowledge of the research field. Anchoring and framing is not an issue of vital sense in consulting process within private banking.

Denna studie granskar aktieanalytikers arbetsmetodik, deras påverkan på aktiemarknaden samt deras upplevda yrkesproblematik. För att åskådliggöra detta har vi genomfört tio djupintervjuer med aktörer från dagens finansbransch. Fem analytiker från de större analyshusen samt fem experter från diverse relaterade finansområden har intervjuats. Målsättningen är att granska analytiker utifrån dessa tio respondenters olika perspektiv och därmed tydliggöra analytikers roll i det finansiella maskineriet. Detta uppnås genom att fokusera på tre delområden: Hur analytiker faktiskt praktiserar sitt yrke och vad för vetenskaplig förankring de har (1), vad de har för påverkan på aktiemarknaden (2) samt vilka svårigheter de upplever att yrket möter i dagsläget och en nära framtid (3). Studien påvisar att variablerna bakom aktievärderingarna är viktigare än värderingsverktyget i sig. Analytikers verktyg för analys är därför bristande vilket har sitt ursprung i företagsekonomins ofullständiga finansiella teorier. De aktörerna med störst påverkan på marknaden är de professionella och institutionella placerarna. Det framgår även att analytiker inte har någon större påverkan på marknaden, vilket var studiens utgångpunkt. Småsparare bör vara medvetna om dessa fakta och inte blint följa riktkurser eller rekommendationer. Slutligen kan studien påvisa att analytiker inte befinner sig i en helt oberoende ställning gentemot arbetsgivare, kunder och bolagen de analyserar. Att konstant värna om dessa relationer leder till direkta och indirekta agentkostnader som slutligen drabbar kunderna och analyshuset. / This paper examines analysts' methodology, their impact on the stock market and their perceived professional problems. To illustrate this, we have conducted ten interviews with profiles from today's financial industry. Five analysts from larger investment banks and five experts from various related financial areas were interviewed. The goal is to examine analysts from these ten respondents' perspectives and thereby clarify the analyst’s role in the financial machinery. This is achieved by focusing on three areas: How analysts actually practice their profession and what scientific basis they have (1), what their impact on the stock market is (2) and the difficulties they believe that the profession is facing today and in the near future (3). The paper shows that the variables behind set value of the stock are more important than the tools of how to set the value itself. The analysts’ tools for analyzing are therefore lacking which can be derived from the fact that the financial theories within the community of business administration often are incomplete. The profiles with the greatest impact on the market are the professional and institutional investors. Furthermore, the paper shows that analysts do not have a major influence on the market, which was the study's starting point. Small investors should be aware of these facts and not blindly follow target prices or recommendations. Finally, the study shows how analysts do not have an unbiased relationship towards their employers, clients or the companies they analyze. Constantly trying to preserve these relations leads to direct and indirect agency costs that ultimately affect the clients and investment banks.

Den här studien undersöker hur vinstvarningar påverkar stora och små företag. För att förklara dess påverkan på företagen har den effektiva marknadshypotesen och behavioral finance använts som grund. Avgränsningen har gjorts till Stockholmsbörsen då inga tidigare studier haft fokus på den. Empirin visar att företag i Large Cap påverkas med i snitt -4,63% och företagen i Small Cap med -8,42%. Large Cap visade signifikanta abnorma avkastningar under eventdatumet och dagen efter medan Small Cap endast visade signifikans under eventdatumet. Vid en portföljjämförelse mellan de två listorna ligger resultatet i linje med den effektiva marknadsteorin. Däremot vid detaljerade mappningar av företagens aktier kan anomalier hittas som kan förklaras av olika psykologiska fenomen inom behavioral finance. / This paper studies how profit warnings affect largeand small companies. The efficient market hypothesis and behavioral finance was used in orderto explain the affect of the profit warnings on the companies’ stocks. The boundary wasdetermined to be the Stockholm OMX since no previous studies had been performed in this particular fashion. The data demostrates that companies within Large Cap are affected with an average of -4,63% and the companies in Small Cap with -8,42%. Large Cap showed significantabnormal returns during the event date and the day after while Small Cap only showed significance during the event date. A portfolio comparison between the two lists reveals results that are in line with the efficient market hypothesis. However when using detailed data of thecompanies stocks some anomalies can be found, which can be explained by psychological phenomena within behavioral finance.

Bakgrund: Den heliga fastemånaden Ramadan innebär stora omställningar i cirka en och en halv miljard muslimers liv. Detta har, med bakgrund i den effektiva marknadshypotesen, föranlett flera olika undersökningar av eventuellt återkommande prisavvikelser i samband med Ramadan, en så kallad Ramadaneffekt. Tidigare studier visar dock på något motstridiga resultat vilket gör att vidare forskning inom området är motiverad. De till viss del förändrade livsvillkor som Ramadan innebär har i tidigare studier använts som förklaringsvariabler, något som dock kan ifrågasättas och undersökas vidare med utgångspunkt i Behavioral finance. Syfte: Denna studie ämnar undersöka om det existerar någon Ramadaneffekt på 17 olika muslimska aktiemarknader samt att kritiskt granska tidigare studier inom området och förklaringsvärdet i fastans fysiska och psykiska påverkan vid en eventuell Ramadaneffekt. Genomförande: Studien är av både kvalitativ och kvantitativ karaktär med huvudsaklig tyngdpunkt i statistiska analyser av studiens datamaterial. Regressionsanalys med dummyvariabler utgör den statistiska metoden och resultatet analyseras genom att applicera Behavioral finance till dokumentstudien för att försöka förklara de statistiska resultaten. Slutsats: Studien finner att endast den pakistanska aktiemarknaden uppvisar en signifikant prisavvikelse under Ramadan. Detta ligger inte i linje med tidigare forskning. Tidigare använda förklaringsvariabler tycks inte heller de ha något stort förklaringsvärde då fastans fysiska och psykiska påverkan torde yttra sig likadant i samtliga länder men effekterna på aktiemarknaderna skiljer sig åt. / Background: Ramadan, the holy month of fasting, means many changes in the lives of approximately one and a half billion Muslims. This, with background in the efficient market hypothesis, has resulted in several studies on potentially reoccurring price deviations in connection with Ramadan, a so-called Ramadan effect. Previous studies show somewhat conflicting results, which motivates further research within the subject. The changed routines of daily life during Ramadan have previously been used as the explanatory variable for the Ramadan effect. The authors question the validity of this relationship and therefore further examine it with an argumentative base in Behavioral finance. Aim: This study aims to investigate whether a Ramadan effect exists on any of 17 Muslim stock markets. Furthermore, it aims to critically analyze previous research within the area and examine whether the physical and psychological effects of fasting have any explanatory value in an eventual existence of a Ramadan effect. Completion: The study uses both a qualitative and quantitative approach with a focus on statistical analysis of the study’s numerical data. Regression analysis with dummy variables represents the statistical method and the results are analyzed by applying Behavioral finance to the literature study in order to explain the results. Conclusion: The only market that shows a systematic price deviation during Ramadan is Pakistan. This is not coherent with previous research. Furthermore, the previously used explanatory variables do not seem to have any great explanatory value since the variables are coherent across the markets whereas the effects on the stock markets are not.

The nature of employee retirement plans has changed dramatically over the past fifteen years as employers have been replacing traditional defined benefit retirement plans with defined contribution plans like the 401(k) plan. This dissertation is focused on the impact that 401(k) plan have on household asset accumulation. The first essay looks at how much asset accumulation can be attributed to 401(k) plans as opposed to other factors such as demographics and saver type characteristics. Overall, the conclusions are consistent with recent research that says these plans induce a reshuffling of assets rather than being funded through a reduction in consumption. Controlling for cohort effects reduces the amount of wealth attributable to 401(k) eligibility to a negligible (and statistically insignificant) amount. The second essay considers the impact that borrowing against the assets in 401(k) plan might have on household asset accumulation. Most personal finance advice warns against borrowing against a retirement plan because of the potential negative impact on retirement wealth. This is especially true for borrowers who are also undisciplined savers and do not or cannot maintain their retirement plan contributions during loan period or who separate from their employers before the loan is repaid. For good savers a retirement plan loan only has a modest impact on retirement wealth. Only modest make-up contributions would need to be made to mitigate the impact of a retirement plan loan. It seems that many borrowers may be using retirement loans because they are in financial difficulty. It also appears that borrowers are trying to maintain their retirement savings, but their asset accumulation within broader measures of wealth is below that of households that do not have outstanding 401(k) loans.

Em um país, como o Brasil, com grande desigualdade de renda, os indivíduos com baixo poder aquisitivo devem ser capazes de maximizar a utilização de sua riqueza para vencer as dificuldades impostas pela disparidade existente. Com isso, o entendimento das razões pelas quais as pessoas se endividam torna-se um tema relevante. O objetivo deste trabalho, portanto é o entendimento das razões para o endividamento destes indivíduos através de entrevistas estruturadas. As conclusões desta pesquisa são de que a falta de planejamento dos indivíduos, a falta de conhecimento sobre educação financeira, a alta propensão ao consumo, a baixa valoração do futuro, a necessidade de status e fatores externos, tais como: a alta taxa de juros, desemprego, desestabilização familiar e problemas de saúde são razões para o endividamento. Os resultados da pesquisa mostram que 21,6% dos entrevistados se endividam devido a incidentes pessoais e familiares, 35,3% da amostra afirmou que o motivo para a situação atual deveu-se ao fato de serem consumistas e 43,1% afirmaram que isso ocorreu devido a falta de controle. / In a country, like Brazil, which has a high level inequality, the low income people have to be capable to maximize their wealth to go through the dificulties imposed by the inequality. , the understandings of the reasons why people become in debt become a relevant theme. The aim of this paper is to understand the reasons to the debt of these people by doing semi-structured interviews. The conclusions of this research are that the absence of planning, the lack of knowledge about financial education, low evaluation of the futures, unemployment, status necessity and extern factors such like high interest income, unemployment, familiar instability and health problems are reasons to take a debt. The results of the research show that 21,6% of the interviewers take debt because of personal and familiar incidents, 35,3% of the sample said that the reason for their situation occurred because they are impulsive buyers, and 43,1% said it happened because of the lack of control.