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The role of regret in the persistence of anomalies in financial markets (In French)

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  • Emmanuel PETIT (GREThA UMR CNRS 5113)

Abstract

In this article, we provide a unified framework which can take into account numerous behavioural anomalies observed in financial markets (disposition effect, under- and overreaction phenomena and so on). Our general theoretical framework uses both cognitive and perceptual theories of emotion. Defining the emotion as a revision process of beliefs and preferences (Livet (2002)), we explain the role of regret in the occurrence and the persistence of many psychological biases recently identified in financial markets (rationalization, conservatism, hindsight and confirmatory biases, etcetera). Specifically, the tendency to sell superior-performing stocks too early (Shefrin and Statman (1985)) is a direct consequence of the investor incapacity of revising a strong false (however protected) belief which appears to sustain crucially his self-confidence. This cognitive resistance towards the emotional process highlights the importance of the individual and social control of the emotions.

Suggested Citation

  • Emmanuel PETIT (GREThA UMR CNRS 5113), 2010. "The role of regret in the persistence of anomalies in financial markets (In French)," Cahiers du GREThA 2010-07, Groupe de Recherche en Economie Théorique et Appliquée.
  • Handle: RePEc:grt:wpegrt:2010-07
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    File URL: http://cahiersdugretha.u-bordeaux4.fr/2010/2010-07.pdf
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    References listed on IDEAS

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    More about this item

    Keywords

    Regret; theory of emotions; disposition effect; behavioural finance;

    JEL classification:

    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • A12 - General Economics and Teaching - - General Economics - - - Relation of Economics to Other Disciplines

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