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How Much Does Expertise Reduce Behavioral Biases? The Case of Anchoring Effects in Stock Return Estimates

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  • Markku Kaustia
  • Eeva Alho
  • Vesa Puttonen
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    Abstract

    "We use data from surveys involving 300 Scandinavian financial market professionals and 213 university students to conduct three controlled experiments in which we manipulate the background information given to subjects. We find a very large anchoring effect in the students' long-term stock return expectations, that is, their estimates are influenced by an initial starting value. Professionals show a much smaller anchoring effect, but it nevertheless remains statistically and economically significant, even when we restrict the sample to more experienced professionals. We also find that the professionals are not conscious of the impact of historical returns on their expectations." Copyright (c) 2008 Financial Management Association International..

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    Bibliographic Info

    Article provided by Financial Management Association International in its journal Financial Management.

    Volume (Year): 37 (2008)
    Issue (Month): 3 (09)
    Pages: 391-412

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    Handle: RePEc:bla:finmgt:v:37:y:2008:i:3:p:391-412

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    Cited by:
    1. Liao, Li-Chuan & Chou, Ray Yeutien & Chiu, Banghan, 2013. "Anchoring effect on foreign institutional investors’ momentum trading behavior: Evidence from the Taiwan stock market," The North American Journal of Economics and Finance, Elsevier, vol. 26(C), pages 72-91.
    2. Camille Magron & Maxime Merli, 2012. "Stocks repurchase and sophistication of individual investors," Working Papers of LaRGE Research Center 2012-02, Laboratoire de Recherche en Gestion et Economie (LaRGE), Université de Strasbourg.
    3. Bhootra, Ajay & Hur, Jungshik, 2013. "The timing of 52-week high price and momentum," Journal of Banking & Finance, Elsevier, vol. 37(10), pages 3773-3782.
    4. McAlvanah, Patrick & Moul, Charles C., 2013. "The house doesn’t always win: Evidence of anchoring among Australian bookies," Journal of Economic Behavior & Organization, Elsevier, vol. 90(C), pages 87-99.

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