Glaser, Markus () (Sonderforschungsbereich 504) Langer, Thomas () (Westfälischen Wilhelms-Universität Münster Lehrstuhl für BWL, insbesondere Finanzierung) Reynders, Jens () Weber, Martin () (Lehrstuhl für ABWL, Finanzwirtschaft, insb. Bankbetriebslehre)
Abstract
In this study, we analyze whether individual expectations of stock returns are influenced by the specific elicitation mode (i.e. whether forecasters have to state future price levels or directly future returns). We thus examine whether there are framing effects in stock market forecasts. We present questionnaire responses of about 250 students from two German universities. Participants were asked to state median forecasts as well as confidence intervals for seven stock market time series. Using a between subject design, one half of the subjects was asked to state future price levels, the other group was directly asked for returns. The main results of our study can be summarized as follows. There is a highly significant framing effect. For upward sloping time series, the return forecasts given by investors who are asked directly for returns are significantly higher than those stated by investors who are asked for prices. For downward sloping time series, the return forecasts given by investors who are asked directly for returns are significantly lower than those stated by investors who are asked for prices. Furthermore, our data shows that subjects underestimate the volatility of stock returns, indicating overconfidence. As a new insight, we find that the strength of the overconfidence effect in stock market forecasts is highly significantly affected by the fact whether subjects provide price or return forecasts. Volatility estimates are lower (and the overconfidence bias is thus stronger) when subjects are asked for returns compared to price forecasts. Moreover, we find that financial education improves answers of subjects. The observed framing effect and the overconfidence bias are less pronounced for subjects with higher financial education.
Download Info
To our knowledge, this item is not available for
download. To find whether it is available, there are three
options:
1. Check below under "Related research" whether another version of this item is available online.
2. Check on the provider's web page
whether it is in fact available.
3. Perform a search for a similarly titled item that would be
available.
Publisher Info
Paper provided by Sonderforschungsbereich 504, Universität Mannheim & Sonderforschungsbereich 504, University of Mannheim in its series Sonderforschungsbereich 504 Publications with number
05-40.
Length: 39 pages Date of creation: 03 Nov 2005 Date of revision: Handle: RePEc:xrs:sfbmaa:05-40
Note: Financial support from the Deutsche Forschungsgemeinschaft, SFB 504, at the University of Mannheim, is gratefully acknowledged. Contact details of provider: Postal: D-68131 Mannheim Phone: (49) (0) 621-292-2547 Fax: (49) (0) 621-292-5594 Email: Web page: http://www.sfb504.uni-mannheim.de/ More information through EDIRC
References listed on IDEAS Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
Michael J. Cooper & Roberto C. Gutierrez & Allaudeen Hameed, 2004.
"Market States and Momentum,"
Journal of Finance,
American Finance Association, vol. 59(3), pages 1345-1365, 06.
[Downloadable!] (restricted)
Cited by: (explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)