Investments, tenth edition

  Conservatism   

A    conservatism    bias means that investors are too slow (too conserva-

tive) in updating their beliefs in response to new evidence. This means that they might 

initially underreact to news about a firm, so that prices will fully reflect new information 

only gradually. Such a bias would give rise to momentum in stock market returns.  

  

2

 D. Kahneman and A. Tversky, “On the Psychology of Prediction,”  Psychology Review  80 (1973), pp. 237–51, 

and “Subjective Probability: A Judgment of Representativeness,”  Cognitive Psychology  3 (1972), pp. 430–54. 

  

3

 W.F.M. De Bondt and R. H. Thaler, “Do Security Analysts Overreact?”  American Economic Review  80 (1990), 

pp. 52–57. 

  

4

 

Brad Barber and Terrance Odean, “Boys Will Be Boys: Gender, Overconfidence, and Common Stock 

Investment,”  Quarterly Journal of Economics  16 (2001), pp. 262–92, and “Trading Is Hazardous to Your Wealth: 

The Common Stock Investment Performance of Individual Investors,”  Journal of Finance  55 (2000), pp. 773–806. 

  

5

 U. Malmendier and G. Tate, “Who Makes Acquisitions? CEO Overconfidence and the Market’s Reaction,” 

  Journal of Financial Economics  89 (July 2008), pp. 20–43. 

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7/17/13   3:46 PM

7/17/13   3:46 PM

Final PDF to printer

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  C H A P T E R  

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  Behavioral Finance and Technical Analysis  

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