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Do Experts in Financial Magazines Exhibit the Representativeness Heuristic? Evidence from Taiwan

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  • Yih-Wenn Laih

Abstract

This paper investigates the use of the representativeness heuristic by experts in Taiwanese investment magazines. We reveal that high-performing experts exhibit less use of representativeness heuristics and more use of herding stock recommendations than poor performers do. Representativeness and herding recommendations increase when sentiments are pessimistic and during bull markets. In general, more representative stocks yield lower abnormal returns and higher return comovement. However, for high-performing experts, recommendations with some degree of representativeness have a higher abnormal return than do recommendations with no representativeness. In addition, stock return comovement caused by herding recommendations catches more market-level news than does stock return comovement that is caused by representativeness.

Suggested Citation

  • Yih-Wenn Laih, 2016. "Do Experts in Financial Magazines Exhibit the Representativeness Heuristic? Evidence from Taiwan," Accounting and Finance Research, Sciedu Press, vol. 5(4), pages 1-49, November.
    • Handle: RePEc:jfr:afr111:v:5:y:2016:i:4:p:49
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    2. Jeffrey Pontiff, 1996. "Costly Arbitrage: Evidence from Closed-End Funds," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 111(4), pages 1135-1151.
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    JEL classification:

    • R00 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General - - - General
    • Z0 - Other Special Topics - - General

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