Nonrational Actors and Financial Market Behavior, Issue 3731
National Bureau of Economic Research, 1991 - Financial institutions - 26 pages
The insights of descriptive decision theorists and psychologists, we believe, have much to contribute to our understanding of financial market macrophenomena. We propose an analytic agenda that distinguishes those individual idiosyncrasies that prove consequential at the macro-level from those that are neutralized by market processes such as poaching. We discuss five behavioral traits - barn-door closing, expert/reliance effects, status quo bias, framing, and herding - that we employ in explaining financial flows. Patterns in flows to mutual funds, to new equities, across national boundaries, as well as movements in debt-equity ratios are shown to be consistent with deviations from rationality.
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ACTORS AND FINANCIAL agency theory aggregate outcomes anomalies arbitrage asset prices behavior in financial behavioral hypotheses behavioral traits bounded rational Bureau of Economic capital cell closed-end fund costs Darryll Hendricks David Card debt-equity debt/equity ratios decision deviations Economic Research economists efficient markets hypothesis efficient markets paradigm empirical equity flows equity market equity returns evidence example exchange rate expect explain FINANCIAL MARKET BEHAVIOR firms futures markets group norm herd behavior identify investment Japanese junk bonds Kahneman managers market efficiency market outcomes Mean Returns median mispriced National Bureau NBER No-Load Growth NONRATIONAL ACTORS nonrational behavior nonrational investors null hypothesis NYSE observed open-end mutual funds optimal P/E ratio paper patterns perfect rationality players Poachability poachers poaching portfolio positive prospects proxied quarterbacking rational behavior relative Reliance Effects Richard Zeckhauser Jayendu securities significant small stocks Stanley Fischer status quo bias stock market strategy t-statistics Table theory Threshold effect trading Tversky Zeckhauser Jayendu Patel