In Essay 1, I use cross-country differences in investors’ traits — trust, patience,
overconfidence, and risk tolerance — to test the underreaction, overreaction, and
uncertain information theories of stock returns. I find that investors’ reactions to large
daily stock price shocks vary between lower and higher levels of these traits. Specifically,
investors with lower levels of trust and more patience underreact more (or overreact less)
to price shocks, which aligns with the predictions of the underreaction hypothesis.
Investors with higher levels of overconfidence overreact more to positive price shocks
and overreact less to negative price shocks. While this finding does not conform exactly
to the predictions of the overreaction hypothesis, it is consistent with more refined
theories of how overconfidence affects asset prices. Investors less tolerant of risk
overreact less to positive price shocks. I also find that differences in institutional
characteristics affect over/underreaction. Specifically, there is less overreaction in
countries with stronger investor protections and less insider trading. Additionally, the ability to sell short is associated with more overreaction to negative shocks and less
overreaction to positive shocks.
In Essay 2, I investigate whether publicly available information (PAI) affects
over/underreaction according to predictions of several theoretical models, and then I test
if differences in investors’ traits modifies the association between publicly available
information and returns. After identifying and correcting for a methodological issue in
some prior research, I show that in a pooled international sample of stocks, investors
overreact to price shocks not accompanied by information, and also overreact (or react
efficiently in some models) to information-based price shocks. I find that the effect of
PAI on returns is not the same in each country, which motivates my tests on how this
variability relates to differences in investor traits. My results show that investors with
higher trust tend to overreact less to shocks accompanied by PAI, while investors less
tolerant of risk underreact to positive price shocks. Additionally, investors with higher
overconfidence and self-attribution bias overreact more to positive price shocks, but less
to negative price shocks, in accordance with behavioral theories. / Includes bibliography. / Dissertation (Ph.D.)--Florida Atlantic University, 2018. / FAU Electronic Theses and Dissertations Collection
| Identifer | oai:union.ndltd.org:fau.edu/oai:fau.digital.flvc.org:fau_40909 |
| Contributors | Brady, Kevin P. (author), Garcia-Feijoo, Luis (Thesis advisor), Florida Atlantic University (Degree grantor), College of Business, Department of Finance |
| Publisher | Florida Atlantic University |
| Source Sets | Florida Atlantic University |
| Language | English |
| Detected Language | English |
| Type | Electronic Thesis or Dissertation, Text |
| Format | 246 p., application/pdf |
| Rights | Copyright © is held by the author with permission granted to Florida Atlantic University to digitize, archive and distribute this item for non-profit research and educational purposes. Any reuse of this item in excess of fair use or other copyright exemptions requires permission of the copyright holder., http://rightsstatements.org/vocab/InC/1.0/ |
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