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The Impact of Overconfidence on Investors' Decisions

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  • Boubaker Adel
  • Talbi Mariem

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Abstract

The purpose of this paper is to study the impact of the bias of overconfidence on the decisions of investors, specifically to evaluate the relationship between the bias, trading volume and volatility. The empirical study on a sample of 27 companies listed on the stock exchange in Tunis, observed over the period, which runs from 2002 until 2010. The results we have achieved, through the application of tests and VAR modeling ARMA-EGARCH indicate the importance of confidence bias in the analysis of characteristics of the Tunisian financial market.

Suggested Citation

  • Boubaker Adel & Talbi Mariem, 2013. "The Impact of Overconfidence on Investors' Decisions," Business and Economic Research, Macrothink Institute, vol. 3(2), pages 53-75, December.
  • Handle: RePEc:mth:ber888:v:3:y:2013:i:2:p:53-75
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    File URL: http://www.macrothink.org/journal/index.php/ber/article/view/4200/3468
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    References listed on IDEAS

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    1. Deshmukh, Sanjay & Goel, Anand M. & Howe, Keith M., 2013. "CEO overconfidence and dividend policy," Journal of Financial Intermediation, Elsevier, vol. 22(3), pages 440-463.
    2. Huisman, Ronald & van der Sar, Nico L. & Zwinkels, Remco C.J., 2012. "A new measurement method of investor overconfidence," Economics Letters, Elsevier, vol. 114(1), pages 69-71.
    3. Roland Benabou and Jean Tirole, 2004. "Willpower and Personal Rules," Journal of Political Economy, University of Chicago Press, vol. 112(4), pages 848-886, August.
    4. Chuang, Wen-I & Lee, Bong-Soo, 2006. "An empirical evaluation of the overconfidence hypothesis," Journal of Banking & Finance, Elsevier, vol. 30(9), pages 2489-2515, September.
    5. Daniel, Kent & Hirshleifer, David & Teoh, Siew Hong, 2002. "Investor psychology in capital markets: evidence and policy implications," Journal of Monetary Economics, Elsevier, vol. 49(1), pages 139-209, January.
    6. Brad M. Barber & Terrance Odean, 2001. "Boys will be Boys: Gender, Overconfidence, and Common Stock Investment," The Quarterly Journal of Economics, Oxford University Press, vol. 116(1), pages 261-292.
    7. Terrance Odean, 1998. "Are Investors Reluctant to Realize Their Losses?," Journal of Finance, American Finance Association, vol. 53(5), pages 1775-1798, October.
    8. Kahneman, Daniel & Tversky, Amos, 1979. "Prospect Theory: An Analysis of Decision under Risk," Econometrica, Econometric Society, vol. 47(2), pages 263-291, March.
    9. Andriosopoulos, Dimitris & Andriosopoulos, Kostas & Hoque, Hafiz, 2013. "Information disclosure, CEO overconfidence, and share buyback completion rates," Journal of Banking & Finance, Elsevier, vol. 37(12), pages 5486-5499.
    10. Stracca, Livio, 2004. "Behavioral finance and asset prices: Where do we stand?," Journal of Economic Psychology, Elsevier, vol. 25(3), pages 373-405, June.
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    Cited by:

    1. repec:spt:apfiba:v:8:y:2018:i:3:f:8_3_5 is not listed on IDEAS
    2. repec:spt:apfiba:v:9:y:2019:i:1:f:9_1_6 is not listed on IDEAS

    More about this item

    Keywords

    Efficiency; Behavioral finance; Overconfidence; Stock returns; Trading volume; Excess volatility; VAR; EGARCH;

    JEL classification:

    • R00 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General - - - General
    • Z0 - Other Special Topics - - General

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