What's Causing Overreaction? An Experimental Investigation of Recency and the Hot Hand Effect
AbstractA substantial body of empirical literature provides evidence of overreaction in markets. Past losers outperform past winners in stock markets as well as in sports markets. Two hypotheses are consistent with this observation. The recency hypothesis states that traders overweight recent information; they are too optimistic about winners and too pessimistic about losers. According to the hot-hand hypothesis, traders try to discover trends in the past record of a firm or a team, and thereby overestimate the autocorrelation in the series. An experimental design allows us to distinguish between these hypotheses. The evidence is consistent with the hot-hand hypothesis. Copyright The editors of the "Scandinavian Journal of Economics", 2004 .
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Bibliographic InfoPaper provided by Tilburg University, Center for Economic Research in its series Discussion Paper with number 1997-36.
Date of creation: 1997
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Other versions of this item:
- Theo Offerman & Joep Sonnemans, 2004. "What's Causing Overreaction? An Experimental Investigation of Recency and the Hot-hand Effect," Scandinavian Journal of Economics, Wiley Blackwell, vol. 106(3), pages 533-554, October.
- H41 - Public Economics - - Publicly Provided Goods - - - Public Goods
- C91 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Individual Behavior
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