Overconfidence and Speculative Bubbles

Scheinkman, José A.; Xiong, Wei

doi:10.2139/ssrn.298865

Cited by 347 publications

(384 citation statements)

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“…This implication is consistent with Ritter (1984) and Derrien (2005) that expectations of investors affect IPO underpricing. Our result can also be compared to previous studies, such as Miller (1977) and Scheinkman and Xiong (2003), on the influence of investor optimism on asset prices. 7 Our framework with heterogeneous beliefs between investors follows the spirit of Miller (1977) that allows each investor to purchase one share and, therefore, the market price is determined by the most optimistic investors when short sales are not allowed.…”

Section: Comparative Staticssupporting

confidence: 58%

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Divergence of opinion and initial public offerings

Chen

Guo

2009

Rev Quant Finan Acc

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Section: Comparative Staticssupporting

confidence: 58%

“…Scheinkman and Xiong (2003) present a model of price bubbles in which an asset owner has an option to sell the asset to other agents with more optimistic beliefs. In their framework, the bubble is based on the recursive expectations of traders.…”

mentioning

confidence: 99%

Divergence of opinion and initial public offerings

Chen

Guo

2009

Rev Quant Finan Acc

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“…An effort should be made in future studies to embed boundedly rational agents' expectations into our evolutionary model. Although there is a theoretical literature on the persistence of erroneous expectations (e.g., [26] empirical studies are certainly needed to further investigate how technological breakthroughs impact market participants' expectations. Such studies will test the robustness of our results and, more importantly, identify contextual factors that may exacerbate or alleviate the market distortion caused by technological breakthroughs.…”

Section: Discussionmentioning

confidence: 99%

Effect of technological breakthroughs on electronic markets

Gupta

Koch

2006

Electron Commerce Res

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Electronic markets have profoundly affected competition and market structures. Many authors have argued that electronic markets can promote competition and increase allocational efficiency, primarily by reducing buyer and seller search costs. However, conventional competitive models do not explain several phenomena we actually observe in electronic markets. Consequently, a variety of researchers have introduced complications to the basic competitive search model, including asymmetric information, branding and product differentiation, network effects, and agency considerations in order to explain e-commerce behavior. However, most previous studies neglect the fact that such characteristics may reflect underlying market evolution processes. Depending upon the evolutionary pattern of a market, the behavior and performance of markets differ. In this paper, we construct a model to examine e-commerce in the framework of dynamic market evolution. Using a system of replicator dynamics, we split a market into two distinct parts and show that the competition within the two segments will follow different, though interrelated evolutionary patterns. We supply the conditions for the existence of a unique global stable equilibrium in this dynamical system. Our model suggests that exogenous increases in online customers triggered by technological breakthrough often play more important roles than price differentials in determining the evolutionary path of a market. By emphasizing the

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“…The argument that overconfidence influences trading volume is shared by several authors such as De Long, Shleifer, Summers, and Waldmann (1991), Kyle and Wang (1997), Benos (1998), Odean (1998), Wang (1998Wang ( , 2001, Daniel, Hirshleifer, and Subrahmanyam, Hirshleifer (1998), and Luo Scheinkman and Xiong (2003). Particularly, Gervais and Odean (2001) developed a model predicting that overconfident investors attribute market gain to the precision of their private information, their judgment skills and their ability to pick winning stocks, and the process of wealth accumulation leads them to overreact following market gains.…”

Section: Literature Reviewmentioning

confidence: 99%

What Does Matter in Economy Today: When Human Psychology Drives Financial Markets

Dhaoui

2015

Arab Economic and Business Journal

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A B S T R A C TThis paper provides the first evidence for empirical tests of the impact of rational expectations as well as behavioral biases, including among other animal spirits such as defined by Akerlof and Shiller on the variability of trading. Using a daily data for five international capital markets in developed countries, strong evidence is found. The hypothesis of rationality fails to determine the investors' trading behavior. The economy is, however, driven by behavioral biases, including more especially animal spirits summarized in investors' sentiments and beliefs.

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Overconfidence and Speculative Bubbles

Cited by 347 publications

References 50 publications

Divergence of opinion and initial public offerings

Divergence of opinion and initial public offerings

Effect of technological breakthroughs on electronic markets

What Does Matter in Economy Today: When Human Psychology Drives Financial Markets

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