Advances in Behavioral Finance, Volume II

Published by Princeton University Press 2005

Advances in Behavioral Finance, Volume II

Edited by: Richard H. Thaler

Volume 2 in the series The Roundtable Series in Behavioral Economics

https://doi.org/10.1515/9781400829125

Overview
Contents

About this book

This book offers a definitive and wide-ranging overview of developments in behavioral finance over the past ten years. In 1993, the first volume provided the standard reference to this new approach in finance--an approach that, as editor Richard Thaler put it, "entertains the possibility that some of the agents in the economy behave less than fully rationally some of the time." Much has changed since then. Not least, the bursting of the Internet bubble and the subsequent market decline further demonstrated that financial markets often fail to behave as they would if trading were truly dominated by the fully rational investors who populate financial theories. Behavioral finance has made an indelible mark on areas from asset pricing to individual investor behavior to corporate finance, and continues to see exciting empirical and theoretical advances.

Advances in Behavioral Finance, Volume II constitutes the essential new resource in the field. It presents twenty recent papers by leading specialists that illustrate the abiding power of behavioral finance--of how specific departures from fully rational decision making by individual market agents can provide explanations of otherwise puzzling market phenomena. As with the first volume, it reaches beyond the world of finance to suggest, powerfully, the importance of pursuing behavioral approaches to other areas of economic life.

The contributors are Brad M. Barber, Nicholas Barberis, Shlomo Benartzi, John Y. Campbell, Emil M. Dabora, Daniel Kent, François Degeorge, Kenneth A. Froot, J. B. Heaton, David Hirshleifer, Harrison Hong, Ming Huang, Narasimhan Jegadeesh, Josef Lakonishok, Owen A. Lamont, Roni Michaely, Terrance Odean, Jayendu Patel, Tano Santos, Andrei Shleifer, Robert J. Shiller, Jeremy C. Stein, Avanidhar Subrahmanyam, Richard H. Thaler, Sheridan Titman, Robert W. Vishny, Kent L. Womack, and Richard Zeckhauser.

Author / Editor information

Richard H. Thaler, the winner of the 2017 Nobel Prize in economics, is the Charles R. Walgreen Distinguished Service Professor of Behavioral Science and Economics at the University of Chicago Booth School of Business. His books include Quasi-Rational Economics (Russell Sage Foundation) and The Winner's Curse (Princeton). He is also the editor of the forerunner to the present volume, Advances in Behavioral Finance (Russell Sage Foundation).

Reviews

"This book provides a thorough review of progress in the field of behavioral finance over the past ten years. By every measure, it will have considerable impact. It is must reading for finance economists as well as anyone interested in behavioral economics. Graduate students and faculty alike will find this book to be an invaluable reference to which they will often refer."—David Laibson, Harvard University

Richard H. Thaler, Winner of the 2017 Nobel Prize in Economics

"Advances in Behavioral Finance, Volume II should be on every Ph.D. reading list in finance programs. It should be seen as a finance book per se, not just a niche 'behavioral finance' book. Thaler's preface is very readable, as is the superb introduction by Thaler and Nick Barberis."—Colin Camerer, California Institute of Technology, author of Behavioral Game Theory and Advances in Behavioral Economics

This is an excellent and useful book which should be recommended to all students of finance.---Peter Howells, Economic Issues

"This book brings together almost all of the most important work in behavioral finance from the last decade, in a manageable presentation suitable for masters- and doctoral-level classes on the subject."—Jay R. Ritter, Cordell Professor of Finance, University of Florida

Topics

Frontmatter Publicly Available Download PDF	i
Contents Publicly Available Download PDF	vii
Preface Requires Authentication Unlicensed Licensed Download PDF	xi
Acknowledgments Requires Authentication Unlicensed Licensed Download PDF	xix
List of Abbreviations Requires Authentication Unlicensed Licensed Download PDF	xxiii
Chapter1. A Survey of Behavioral Finance Nicholas Barberis and Richard Thaler Requires Authentication Unlicensed Licensed Download PDF	1
Part I. Limits to Arbitrage
Chapter 2. The Limits of Arbitrage Andrei Shleifer and Robert W. Vishny Requires Authentication Unlicensed Licensed Download PDF	79
Chapter 3. How Are Stock Prices Affected by the Location of Trade? Kenneth A. Froot and Emil M. Dabora Requires Authentication Unlicensed Licensed Download PDF	102
Chapter 4. Can the Market Add and Subtract? Mispricing in Tech Stock Carve-outs Owen A. Lamont and Richard H. Thaler Requires Authentication Unlicensed Licensed Download PDF	130
Part II. Stock Returns and the Equity Premium
Chapter 5. Valuation Ratios and the Long-run Stock Market Outlook: An Update John Y. Campbell and Robert J. Shiller Requires Authentication Unlicensed Licensed Download PDF	173
Chapter 6. Myopic Loss Aversion and the Equity Premium Puzzle Shlomo Benartzi and Richard H. Thaler Requires Authentication Unlicensed Licensed Download PDF	202
Chapter 7. Prospect Theory and Asset Prices Nicholas Barberis, Ming Huang and Tano Santos Requires Authentication Unlicensed Licensed Download PDF	224
Part III. Empirical Studies of Overreaction and Underreaction
Chapter 8. Contrarian Investment, Extrapolation, and Risk Josef Lakonishok, Andrei Shleifer and Robert W. Vishny Requires Authentication Unlicensed Licensed Download PDF	273
Chapter 9. Evidence on the Characteristics of Cross-sectional Variation in Stock Returns Kent Daniel and Sheridan Titman Requires Authentication Unlicensed Licensed Download PDF	317
Chapter 10. Momentum Narasimhan Jegadeesh and Sheridan Titman Requires Authentication Unlicensed Licensed Download PDF	353
Chapter 11. Market Efficiency and Biases in Brokerage Recommendations Roni Michaely and Kent L. Womack Requires Authentication Unlicensed Licensed Download PDF	389
Part IV. Theories of Overreaction and Underreaction
Chapter 12. A Model of Investor Sentiment Nicholas Barberis, Andrei Shleifer and Robert W. Vishny Requires Authentication Unlicensed Licensed Download PDF	423
Chapter 13. Investor Psychology and Security Market Under- and Overreaction Kent Daniel, David Hirshleifer and Avanidhar Subrahmanyam Requires Authentication Unlicensed Licensed Download PDF	460
Chapter 14. A Unified Theory of Underreaction, Momentum Trading, and Overreaction in Asset Markets Harrison Hong and Jeremy C. Stein Requires Authentication Unlicensed Licensed Download PDF	502
Part V. Investor Behavior
Chapter 15. Individual Investors Brad M. Barber and Terrance Odean Requires Authentication Unlicensed Licensed Download PDF	543
Chapter 16. Naive Diversification Strategies in Defined Contribution Savings Plans Shlomo Benartzi and Richard H. Thaler Requires Authentication Unlicensed Licensed Download PDF	570
Part VI. Corporate Finance
Chapter 17. Rational Capital Budgeting in an Irrational World Jeremy C. Stein Requires Authentication Unlicensed Licensed Download PDF	605
Chapter 18. Earnings Management to Exceed Thresholds François Degeorge, Jayendu Patel and Richard Zeckhauser Requires Authentication Unlicensed Licensed Download PDF	633
Chapter 19. Managerial Optimism and Corporate Finance J. B. Heaton Requires Authentication Unlicensed Licensed Download PDF	667
List of Contributors Requires Authentication Unlicensed Licensed Download PDF	685

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