NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Overconfident Investors, Predictable Returns, and Excessive Trading

Kent Daniel, David Hirshleifer

NBER Working Paper No. 21945
Issued in January 2016
NBER Program(s):   AP

Individuals and asset managers trade aggressively, resulting in high volume in asset markets, even when such trading results in high risk and low net returns. Asset prices display patterns of predictability that are difficult to reconcile with rational expectations–based theories of price formation. This paper discusses how investor overconfidence can explain these and other stylized facts. We review the evidence from psychology and securities markets bearing upon overconfidence effects, and present a set of overconfidence based models that are consistent with this evidence.

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Document Object Identifier (DOI): 10.3386/w21945

Published: Kent Daniel & David Hirshleifer, 2015. "Overconfident Investors, Predictable Returns, and Excessive Trading," Journal of Economic Perspectives, American Economic Association, vol. 29(4), pages 61-88, Fall. citation courtesy of

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