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An Empirical Analysis of Investor Confidence Incorporated in Market Prices

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  • Austin Murphy
  • Liang Fu

Abstract

Using market prices for an equity index, this research empirically estimates the complex interrelationship between the confidence of informed investors, aggregate market sentiment, and many other variables. The empirical results uncover new insights on investment behavior, including novel evidence on the root causes of various financial phenomena like the momentum and calendar month effects, which themselves appear to be caused by the incentive systems existing among institutional investors. Investor confidence is found to fall (rise) with moderate (large) deviations between market prices and intrinsic values, but only true knowledge of that variable is discovered to enhance investment returns.

Suggested Citation

  • Austin Murphy & Liang Fu, 2019. "An Empirical Analysis of Investor Confidence Incorporated in Market Prices," Journal of Behavioral Finance, Taylor & Francis Journals, vol. 20(3), pages 267-293, July.
    • Handle: RePEc:taf:hbhfxx:v:20:y:2019:i:3:p:267-293
    DOI: 10.1080/15427560.2018.1511564
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