1 / 11

Behavioral Finance

Behavioral Finance. Economics 437. Scheduling Issues. Next two weeks, Prof Burton is not traveling Grading review (of 2 nd mid-term): Monroe Basement, 3:30 – 6:30 on Tuesday, April 22nd. Earnings or Price? Momentum. Earning Earnings or Price? “Under-reaction” Ball-Brown

kassia
Download Presentation

Behavioral Finance

An Image/Link below is provided (as is) to download presentation Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author. Content is provided to you AS IS for your information and personal use only. Download presentation by click this link. While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server. During download, if you can't get a presentation, the file might be deleted by the publisher.

E N D

Presentation Transcript

  1. Behavioral Finance Economics 437

  2. Scheduling Issues • Next two weeks, Prof Burton is not traveling • Grading review (of 2nd mid-term): Monroe Basement, 3:30 – 6:30 on Tuesday, April 22nd

  3. Earnings or Price? Momentum • Earning Earnings or Price? • “Under-reaction” • Ball-Brown • Price Earnings or Price? • Jegadeesh-Titman

  4. Ball & Brown 1986 • Market “underreacts” to earnings surprises • Article generally ignored until Jagdeesh-Titman • Time span suggests that Ball-Brown effect may be the same thing as Jagdeesh-Titman

  5. Jegadeesh and Titman (1993) • Relative strength strategies, sometimes called “Earnings or Price?” strategies • Find past winners and and past losers (using 3 to 12 month holding periods) generate gains (winners gain; losers lose) • Construct W portfolio and L portfolio • W-L (using 6 month periods) earns more than 12 % better than market portfolio • Longer term portfolios do best in next 12 months • Interpretation in “event time” • Doesn’t work in January

  6. Chan, Jegadeesh, Lakonishok 1996 • Is it earnings? Is it price? • They 7.7 percent six month gap between winner portfolios and loser portfolios using price momentum. • Conclusion (page 1709): “ In general, the price momentum effect tends to be stronger and longer-lived than the earnings momentum effect.”

  7. Chordia-Shivakumar, 2006 • Is it “pricing momentum” or “earnings momentum” that drives the “under-reaction” phenomenon? • Conclude the earnings momentum is the key factor. • Price momentum variables are a “noisy proxy” for earnings momentum

  8. Haugen-Baker, 1996 • Great summary of the literature • A Grand Synthesis • Use multi-factor model to create a “generalized” value portfolio • Incorporate J-T effects • 20 percent outperformance for H-B synthesis • Data used from five countries: France, Germany, Japan, UK, US

  9. Hanna-Ready, 2005 • Dispute H-B results due to monthly turnover (40 percent) in HB rebalancing (causes high transaction costs) • Conclude that six month rebalancing of F-F portfolios is best • Most of H-B results come from J-T. J-T results fall if transaction costs considered • Cannot explain why F-F does so well

  10. What about January? • Total returns over decades come mostly in January • F-F, D-T, J-T results all peculiar in January • Two January effects • The above impact • January as a predictor of the yearly results

  11. The End

More Related