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The Dynamics of Overconfidence: Evidence from Stock Market Forecasters

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  • Deaves, Richard
  • Lüders, Erik
  • Schröder, Michael

Abstract

As a group, market forecasters are egregiously overconfident. In conformity to the dynamic model of overconfidence of Gervais and Odean (2001), successful forecasters become more overconfident. What?s more, more experienced forecasters have ?learned to be overconfident,? and hence are more susceptible to this behavioral flaw than their less experienced peers. It is not just individuals who are affected. Markets also become more overconfident when market returns have been high.

Suggested Citation

  • Deaves, Richard & Lüders, Erik & Schröder, Michael, 2005. "The Dynamics of Overconfidence: Evidence from Stock Market Forecasters," ZEW Discussion Papers 05-83, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
  • Handle: RePEc:zbw:zewdip:4566
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    References listed on IDEAS

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    Cited by:

    1. von der Gracht, Heiko A. & Hommel, Ulrich & Prokesch, Tobias & Wohlenberg, Holger, 2016. "Testing weighting approaches for forecasting in a Group Wisdom Support System environment," Journal of Business Research, Elsevier, vol. 69(10), pages 4081-4094.
    2. Leppin, Julian Sebastian, 2014. "The relation between overreaction in forecasts and uncertainty: A nonlinear approachvon," HWWI Research Papers 158, Hamburg Institute of International Economics (HWWI).
    3. Nawrocki, Tomasz Leszek & Jonek-Kowalska, Izabela, 2016. "Assessing operational risk in coal mining enterprises – Internal, industrial and international perspectives," Resources Policy, Elsevier, vol. 48(C), pages 50-67.
    4. repec:spt:apfiba:v:8:y:2018:i:3:f:8_3_5 is not listed on IDEAS
    5. Mokinski, Frieder, 2016. "Using time-stamped survey responses to measure expectations at a daily frequency," International Journal of Forecasting, Elsevier, vol. 32(2), pages 271-282.
    6. Beshears, John & Milkman, Katherine L., 2011. "Do sell-side stock analysts exhibit escalation of commitment?," Journal of Economic Behavior & Organization, Elsevier, vol. 77(3), pages 304-317, March.
    7. Deaves, Richard & Lei, Jin & Schroeder, Michael, 2015. "Forecaster overconfidence and market survey performance," FinMaP-Working Papers 40, Collaborative EU Project FinMaP - Financial Distortions and Macroeconomic Performance: Expectations, Constraints and Interaction of Agents.
    8. Louis Lévy-Garboua & Muniza Askari & Marco Gazel, 2018. "Confidence biases and learning among intuitive Bayesians," Theory and Decision, Springer, vol. 84(3), pages 453-482, May.
    9. Elina Pradkhan, 2016. "Information Content of Trading Activity in Precious Metals Futures Markets," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 36(5), pages 421-456, May.
    10. Zhixin Xie & Lionel Page & Ben Hardy, 2016. "Investigating gender differences under time pressure in financial risk taking," QuBE Working Papers 045, QUT Business School.
    11. Menkhoff, Lukas & Nikiforow, Marina, 2009. "Professionals' endorsement of behavioral finance: Does it impact their perception of markets and themselves?," Journal of Economic Behavior & Organization, Elsevier, vol. 71(2), pages 318-329, August.
    12. Caliendo, Frank & Huang, Kevin X.D., 2008. "Overconfidence and consumption over the life cycle," Journal of Macroeconomics, Elsevier, vol. 30(4), pages 1347-1369, December.
    13. Gloede, Oliver & Menkhoff, Lukas, 2011. "Financial professionals' overconfidence:Is it experience, function, or attitude?," Hannover Economic Papers (HEP) dp-428, Leibniz Universität Hannover, Wirtschaftswissenschaftliche Fakultät.
    14. repec:arp:ijefrr:2018:p:30-37 is not listed on IDEAS
    15. Christoph Gort & Mei Wang, 2010. "Overconfidence and Active Management," Chapters,in: Handbook of Behavioral Finance, chapter 12 Edward Elgar Publishing.
    16. Johansson Stenman, Olof & Nordblom, Katarina, 2010. "Are Men Really More Overconfident than Women? - A Natural Field Experiment on Exam Behavior," Working Papers in Economics 461, University of Gothenburg, Department of Economics.
    17. Lunn, Pete, 2011. "The Role of Decision-Making Biases in Ireland's Banking Crisis," Papers WP389, Economic and Social Research Institute (ESRI).
    18. Shantanu Bagchi, 2011. "Can overconfidence explain the consumption hump?," Journal of Economics and Finance, Springer;Academy of Economics and Finance, vol. 35(1), pages 41-70, January.
    19. Vetter, J. & Benlian, Alexander & Hess, T., 2011. "Overconfidence in IT Investment Decisions: Why Knowledge can be Boon and Bane at the same Time," Publications of Darmstadt Technical University, Institute for Business Studies (BWL) 58030, Darmstadt Technical University, Department of Business Administration, Economics and Law, Institute for Business Studies (BWL).
    20. Sonsino, Doron & Regev, Eran, 2013. "Informational overconfidence in return prediction – More properties," Journal of Economic Psychology, Elsevier, vol. 39(C), pages 72-84.
    21. Leppin, Julian Sebstian, 2014. "The Relation Between Overreaction in Forecasts and Uncertainty: A Nonlinear Approach," Annual Conference 2014 (Hamburg): Evidence-based Economic Policy 100284, Verein für Socialpolitik / German Economic Association.
    22. repec:eee:jbfina:v:84:y:2017:i:c:p:68-87 is not listed on IDEAS

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