Abstract
The paper investigates investor’s behaviour in the context of value–glamour investing and fundamental analysis, and provides a direct test of the confirmation bias by bringing together the evidence from several strands of literature into a well-defined framework of investor behaviour. The empirical evidence presented is in line with a model of investor’s asymmetric reaction to good and bad news due to confirmation bias. Pessimistic value investors typically under-react to good financial information, but they process bad information rationally or over-confidently. On the contrary, glamour investors are often too optimistic to timely update prices following bad financial information, but they are likely to fairly price or even over-react when receiving good information.
Original language | English |
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Pages (from-to) | 524-549 |
Number of pages | 26 |
Journal | The European Journal of Finance |
Volume | 20 |
Issue number | 6 |
Early online date | 7 Nov 2012 |
DOIs | |
Publication status | Published - 1 Jun 2014 |
Keywords
- value-glamour investing
- financial statement analysis
- contextual fundamental analysis
- market efficiency
- behavioural finance
- confirmation bias