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Financial Professionals' Overconfidence: Is It Experience, Function, or Attitude?

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  • Oliver Gloede
  • Lukas Menkhoff

Abstract

This paper examines financial professionals’ overconfidence in their forecasting performance. We compare individuals’ self†rating of performance with the true performance, both measured relative to the same peer group. The forecasters in our sample show overconfidence on average, although to a moderate degree, including many cases of underconfidence. In analysing this, we find that working experience is accompanied by less overconfidence. Function is also related to less overconfidence, such as being a fund manager and using fundamental analysis. The same effect is found for the attitude to herd, whereas recent success appears with more overconfident professionals.

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  • Oliver Gloede & Lukas Menkhoff, 2014. "Financial Professionals' Overconfidence: Is It Experience, Function, or Attitude?," European Financial Management, European Financial Management Association, vol. 20(2), pages 236-269, March.
    • Handle: RePEc:bla:eufman:v:20:y:2014:i:2:p:236-269
    DOI: 10.1111/j.1468-036X.2011.00636.x
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    2. Felix Holzmeister & Jürgen Huber & Michael Kirchler & Florian Lindner & Utz Weitzel & Stefan Zeisberger, 2020. "What Drives Risk Perception? A Global Survey with Financial Professionals and Laypeople," Management Science, INFORMS, vol. 66(9), pages 3977-4002, September.
    3. Markus Arnold & Florian Elsinger & Frederick W. Rankin, 2021. "The Unintended Consequences of Headquarters’ Involvement in Decentralized Transfer Price Negotiations: Experimental Evidence," Management Science, INFORMS, vol. 67(12), pages 7912-7931, December.
    4. Brückbauer, Frank & Schröder, Michael, 2021. "Data resource profile: The ZEW FMS dataset," ZEW Discussion Papers 21-100, ZEW - Leibniz Centre for European Economic Research.
    5. Brückbauer Frank & Schröder Michael, 2023. "The ZEW Financial Market Survey Panel," Journal of Economics and Statistics (Jahrbuecher fuer Nationaloekonomie und Statistik), De Gruyter, vol. 243(3-4), pages 451-469, June.
    6. Markus Spiwoks & Kilian Bizer, 2018. "Correlation Neglect and Overconfidence. An Experimental Study," Journal of Applied Finance & Banking, SCIENPRESS Ltd, vol. 8(3), pages 1-5.

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    JEL classification:

    • G1 - Financial Economics - - General Financial Markets
    • D84 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Expectations; Speculations
    • F31 - International Economics - - International Finance - - - Foreign Exchange

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