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| Author: | Bloomfield, R. Libby, R. Nelson, M.W. |
| Title: | Underreactions, overreactions and moderated confidence |
| Journal: | Journal of Financial Markets
2000 : MAY, VOL. 3:2, p. 113-137 |
| Index terms: | Markets Efficiency Models |
| Freeterms: | Confidence |
| Language: | eng |
| Abstract: | This paper presents a model in which a representative investor has only a noisy signal of the reliability of his information. This noise causes prices to underreact to reliable information and overreact to unreliable information. This phenomenon is called 'moderated confidence', because in both cases, the investor's confidence is moderated toward his prior expectation of reliability. It is found strong support for both types of price errors. It is also found that tests of weak-form efficiency can indicate overreactions, even when tests of semi-strong-form efficiency indicate underreactions using exactly the same data. |
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