David Hirshleifer

The Paul Merage School of Business
University of California, Irvine
4291 Pereira Drive
Irvine, CA 92697
Tel: 949/724-2896

E-Mail: EmailAddress: hidden: you can email any NBER-related person as first underscore last at nber dot org
NBER Program Affiliations: AP , CF
NBER Affiliation: Research Associate

NBER Working Papers and Publications

May 2017Innovative Originality, Profitability, and Stock Returns
with Po-Hsuan Hsu, Dongmei Li: w23432
We propose that innovative originality (InnOrig) is a valuable organizational resource, and that owing to limited investor attention and skepticism of complexity, firms with greater InnOrig are undervalued. We find that firms’ InnOrig strongly predicts higher, more persistent, and less volatile profitability; and higher abnormal stock returns—findings that are robust to extensive controls. The return predictive power of InnOrig is stronger for firms with higher valuation uncertainty, lower investor attention, and greater sensitivity of future profitability to InnOrig. This evidence suggests that innovative originality acts as a ‘competitive moat,’ and that the market undervalues InnOrig.
January 2016Overconfident Investors, Predictable Returns, and Excessive Trading
with Kent Daniel: w21945
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.

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

April 2010Investor Overconfidence and the Forward Premium Puzzle
with Craig Burnside, Bing Han, Tracy Yue Wang: w15866
We offer an explanation for the forward premium puzzle in foreign exchange markets based upon investor overconfidence. In the model, overconfident individuals overreact to their information about future inflation, which causes greater overshooting in the forward rate than in the spot rate. Thus, when agents observe a signal of higher future inflation, the consequent rise in the forward premium predicts a subsequent downward correction of the spot rate. The model can explain the magnitude of the forward premium bias and several other stylized facts related to the joint behavior of forward and spot exchange rates. Our approach is also consistent with the availability of profitable carry trade strategies.

Published: Craig Burnside & Bing Han & David Hirshleifer & Tracy Yue Wang, 2011. "Investor Overconfidence and the Forward Premium Puzzle," Review of Economic Studies, Oxford University Press, vol. 78(2), pages 523-558. citation courtesy of

March 2000Covariance Risk, Mispricing, and the Cross Section of Security Returns
with Kent D. Daniel, Avanidhar Subrahmanyam: w7615
This paper offers a multisecurity model in which prices reflect both covariance risk and misperceptions of firms' prospects, and in which arbitrageurs trade to profit from mispricing. We derive a pricing relationship in which expected returns are linearly related to both risk and mispricing variables. The model thereby implies a multivariate relation between expected return, beta, and variables that proxy for mispricing of idiosyncratic components of value tends to be arbitraged away but systematic mispricing is not. The theory is consistent with several empirical findings regarding the cross-section of equity returns, including: the observed ability of fundamental/price ratios to forecast aggregate and cross-sectional returns, and of market value but not non-market size measures to fore...
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