Informational overconfidence in return prediction – More properties

Sonsino, Doron; Regev, Eran

doi:10.1016/j.joep.2013.06.006

Cited by 19 publications

(4 citation statements)

References 33 publications

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“…Prominent cases include under-and overreaction to news (De Bondt and Thaler, 1985) and the disposition effect, selling winning and keeping losing stocks (Shefrin and Statman, 1985). Investors are prone to these and other biases partly due to over-confidence in their ability to predict the market (Menkhoff et al, 2013;Sonsino and Regev, 2013). Other reasons are inherent cognitive limitations (G€ arling et al, 2009).…”

Section: Financial Analysts' Influences On Investmentsmentioning

confidence: 99%

Non-professional versus professional investors’ trust in financial analysts’ recommendations and influences on investments

Jansson,

Michaelsen,

Sonsino

et al. 2024

RBF

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PurposeThe paper aims to investigate differences in non-professional and professional stock investors’ trust in and tendency to follow financial analysts’ buy and sell recommendations.Design/methodology/approachOnline experiment conducted in Sweden in March 2022 comparing non-professional private investors (n = 80), professional investors (n = 33), and master students in finance (n = 28). Information was presented about four company stocks listed on the New York stock exchange. Two stocks were buy-recommended and two stocks sell-recommended by financial analysts. For one stock of each type, the recommendation was presented to participants. Dependent variables were predictions of the stock price after three months, ratings of confidence in the predictions and choices of holding, buying or selling the stock. Ratings were also made of the importance of presented stock-related information as well as trust in analysts’ skill and integrity.FindingsMore positive return predictions were made of buy-recommended than sell-recommended stocks. Non-professionals and to some degree finance students tended to trust financial analysts more than professional investors did and they were more influenced by the presentation of the buy recommendations. All groups made too optimistic return predictions, but the professionals were less confident in their predictions, more likely to sell the stocks and lost less on their investments.Originality/valueA new finding is that non-professional stock investors are more likely than professional stock investors to trust financial analysts and follow their recommendations. It suggests that financial analysts’ recommendations influence non-professional investors to take unmotivated investment risks. Non-professionals in the stock market should hence be advised to exercise more caution in following analysts’ recommendations.

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Section: Financial Analysts' Influences On Investmentsmentioning

confidence: 99%

Non-professional versus professional investors’ trust in financial analysts’ recommendations and influences on investments

Jansson,

Michaelsen,

Sonsino

et al. 2024

RBF

Self Cite

View full text Add to dashboard Cite

show abstract

“…Many authors found that predictions of financial professionals about the future returns of assets are very inaccurate and miscalibrated (Barber & Odean, 2001;BenDavid, Graham, & Harvey, 2010;Sonsino & Regev, 2013). In addition, it was shown that predictions of professionals are often more inaccurate than predictions of lay people and this lead to a conception of a hypothesis about an inverse effect of expertise in predicting (Staël von Holstein, 1972;Yates, McDaniel, & Brown, 1991;Menkhoff, Schmeling, & Schmidt, 2013;Glaser, Langer, & Weber, 2005).…”

Section: Defining Excessive Optimism and Distinguishing It From Othermentioning

confidence: 99%

“…We used a classical method of estimating 95% confidence intervals, which is widely used in the research on overconfidence when measuring miscalibration but also in observing excessive optimism (e.g., Menkhoff, Schmeling, & Schmidt, 2013;Sonsino & Regev, 2013;Toshino & Suto, 2004). The participants were instructed as follows:…”

Section: Measuring Excessive Optimismmentioning

confidence: 99%

We expect stocks to rise, but we do not know when and which ones: Excessive optimism in predicting future stock indices returns

Grežo

2017

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In this study, we analyze whether: 1) financial professionals manifest lower excessive optimism in predicting future stock indices returns; 2) excessive optimism occurs more when predicting future returns of indices reporting profits than indices reporting losses 3) more long-term predictions are more optimistic than short-term predictions. Three groups of participants (n = 251) -investment managers, financial advisors, and lay men predicted future returns of six stock indices in three forecasting horizons by estimating the 95% confidence intervals. The results showed a high inaccuracy in all three groups. The most accurate group was a group of investment managers, followed by lay men and advisors. We also found that 93% of all incorrect predictions were over-optimistic and excessive optimism was much higher when forecasting stock indices that reported profits in the recent past. T he results of this research did not confirm previous findings about inverse effect of expertise in predicting futu re returns of financial assets.

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“…1 For example, people may overestimate how likely they are to have the correct answers to general knowledge questions (Soll & Klayman, 2004) or how accurate the outcomes of their investment decisions are (Lambert, Bessière, & N'Goala, 2012;Sonsino & Regev, 2013).…”

Section: Introductionmentioning

confidence: 99%

Overconfident health workers provide lower quality healthcare

Kovacs

Lagarde

Cairns

2020

Journal of Economic Psychology

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Overconfident health workers provide lower quality healthcareWhile a growing body of evidence suggests that healthcare workers in low and middle-income countries often provide poor quality of care, the reasons behind such low performance remain unclear. The literature on medical decision-making suggests that cognitive biases, or failures related to the way healthcare providers think, explain many diagnostic errors. This study investigates whether one cognitive bias, overconfidence, defined as the tendency to overestimate one's performance relative to others, is associated with the low quality of care provided in Senegal.We link survey data on the overconfidence of health workers to objective measures of the quality of care they provide to standardised patientsenumerators who pose as real patients and record details of the consultation. We find that about a third of providers are overconfidentmeaning that they overestimate their own abilities relative to their peers. We then show that overconfident providers are 26% less likely to manage patients correctly and exert less effort in clinical practice.These results suggest that the low levels of quality of care observed in some settings could be partly explained by the cognitive biases of providers, such as overconfidence. Policies that encourage adequate supervision and feedback to healthcare workers might reduce such failures in clinical decision-making.

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Informational overconfidence in return prediction – More properties

Cited by 19 publications

References 33 publications

Non-professional versus professional investors’ trust in financial analysts’ recommendations and influences on investments

Non-professional versus professional investors’ trust in financial analysts’ recommendations and influences on investments

We expect stocks to rise, but we do not know when and which ones: Excessive optimism in predicting future stock indices returns

Overconfident health workers provide lower quality healthcare

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