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Do culture, sentiment, and cognitive dissonance explain the ‘above suspicion’ anomalies?

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  • Ali Altanlar
  • Jiaqi Guo
  • Phil Holmes

Abstract

We investigate how cognitive dissonance arising from interactions between sentiment and culture affects momentum and post‐earnings‐announcement‐drift (PEAD). We focus on differing views relating to change between western and East Asian cultures. Building on Hong and Stein's heterogeneous trader model and recognizing westerners’ (easterners’) belief in continuation (reversal), we propose cognitive dissonance arises in different circumstances and to differing degrees in the two cultures, resulting in it being a key driver of the anomalies. Results support our hypotheses, suggesting sentiment and culture interact to impact cognitive dissonance, explaining differences in the anomalies across countries evident in prior literature.

Suggested Citation

  • Ali Altanlar & Jiaqi Guo & Phil Holmes, 2019. "Do culture, sentiment, and cognitive dissonance explain the ‘above suspicion’ anomalies?," European Financial Management, European Financial Management Association, vol. 25(5), pages 1168-1195, November.
    • Handle: RePEc:bla:eufman:v:25:y:2019:i:5:p:1168-1195
    DOI: 10.1111/eufm.12203
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    Cited by:

    1. Gao, Ya & Han, Xing & Li, Youwei & Xiong, Xiong, 2021. "Investor heterogeneity and momentum-based trading strategies in China," International Review of Financial Analysis, Elsevier, vol. 74(C).
    2. Guo, Jiaqi & Holmes, Phil, 2022. "Does market openness mitigate the impact of culture? An examination of international momentum profits and post-earnings-announcement drift," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 76(C).
    3. Bayram Veli Salur & Cumhur Ekinci, 2023. "Anomalies and Investor Sentiment: International Evidence and the Impact of Size Factor," IJFS, MDPI, vol. 11(1), pages 1-21, March.
    4. Wang, Wenzhao & Su, Chen & Duxbury, Darren, 2021. "Investor sentiment and stock returns: Global evidence," Journal of Empirical Finance, Elsevier, vol. 63(C), pages 365-391.
    5. Mbarki, Imen & Omri, Abdelwahed & Naeem, Muhammad Abubakr, 2022. "From sentiment to systemic risk: Information transmission in Asia-Pacific stock markets," Research in International Business and Finance, Elsevier, vol. 63(C).
    6. Guo, Jiaqi & Holmes, Phil & Altanlar, Ali, 2020. "Is herding spurious or intentional? Evidence from analyst recommendation revisions and sentiment," International Review of Financial Analysis, Elsevier, vol. 71(C).

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