tailieunhanh - Correlation neglect and overconfidence an experimental study

For the first time in economic research, the present experimental study confronted participants with the task to predict stock prices ex ante in order to analyze the interrelation of the behavioral anomalies overconfidence and correlation neglect. The study shows that the participants considerably overestimate their accuracy of forecasting (overconfidence). Almost half of all participants () disregard the correlation among return developments for different financial instruments (correlation neglect). It was also observed that the correlation neglect, when forecasting diversified financial instruments (funds), has a cushioning effect on overconfidence. | Journal of Applied Finance Banking vol. 8 no. 3 2018 75-86 ISSN 1792-6580 print version 1792-6599 online Scienpress Ltd 2018 Correlation Neglect and Overconfidence An Experimental Study Markus Spiwoks1 and Kilian Bizer2 Abstract For the first time in economic research the present experimental study confronted participants with the task to predict stock prices ex ante in order to analyze the interrelation of the behavioral anomalies overconfidence and correlation neglect. The study shows that the participants considerably overestimate their accuracy of forecasting overconfidence . Almost half of all participants disregard the correlation among return developments for different financial instruments correlation neglect . It was also observed that the correlation neglect when forecasting diversified financial instruments funds has a cushioning effect on overconfidence. JEL classification numbers G02 G11 G12 G17 D81 D84 Keywords Behavioral Finance Experiments Stock Price Forecasts Correlation Neglect Overconfidence. 1 Introduction The behavior of actors on the capital market has increasingly become the focus of attention in economic research. This scientific development was motivated by severe financial market turmoil that occurred during the past three decades 1987 1990 2000 and 2008 and that fueled the doubt concerning the neoclassic 1 Markus Spiwoks Ostfalia University of Applied Sciences Faculty of Business 38440 Wolfsburg Germany. 2 Kilian Bizer Georg August University Gottingen Faculty of Economic Sciences Platz der Gottinger Sieben 3 37073 Gottingen Germany. Article Info Received December 27 2017. Revised February 4 2018 Published online May 1 2018 76 Markus Spiwoks and Kilian Bizer interpretation of capital-market operations cf. . Daniel and Hirshleifer 2015 . The present study addresses two behavioral anomalies of capital-market actors their disregard of the correlation among return developments for different financial .