Arrogance can be a virtue: Overconfidence, information acquisition, and market efficiency

• 成果类型: Article
• 署名作者: Ko, K. Jeremy; Huang, Zhijian (James)
• 署名单位: Pennsylvania Commonwealth System of Higher Education (PCSHE); Pennsylvania State University; Pennsylvania State University - University Park
• 刊物名称: JOURNAL OF FINANCIAL ECONOMICS
• ISSN/ISSBN: 0304-405X
• DOI: 10.1016/j.jfineco.2006.03.002
• 发表日期: 2007
• 页码: 529-560
• 关键词: Overconfidence; information acquisition; Price quality; market efficiency; behavioral finance

摘要

In behavioral finance, overconfidence has been established as a prevalent psychological bias, which can make markets less efficient by creating mispricing in the form of excess volatility and return predictability. In this paper, we develop a model in which overconfidence causes investors to overinvest in information acquisition when this information could improve market efficiency by driving prices closer to true values. We study the impact of overconfidence on mispricing and information acquisition, comparing their net effect on prices. We derive several novel implications. First, overconfidence generally improves market pricing provided the level of overconfidence is not too high. Pricing can also improve even when overconfidence is arbitrarily high, depending on the amount of private information acquired relative to publicly available information. (c) 2006 Elsevier B.V. All rights reserved.