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The Availability Heuristic and other Psychological Aspects of Investors’ Reactions to Company-Specific Events

In: Behavioral Finance WHERE DO INVESTORS' BIASES COME FROM?

Author

Listed:
  • Doron Kliger
  • Andrey Kudryavtsev

Abstract

Stock price reactions to company-specific events are supposed to reflect the effect of the events on the companies’ expected future financial performance. Yet, it is difficult to estimate the effect an event may exert on a given company and, along with rational considerations, investors’ reactions to company-specific events may also be affected by various psychological factors. In this chapter, we sketch the picture emerging from three studies of ours dealing with psychol gical aspects of investors’ reactions to analyst recommendation revisions. These studies demonstrate that stock price reactions to recommendation revisions may depend on a number of factors, such as: (i) contemporaneous stock market index returns; (ii) contemporaneous changes in the value of VIX index; and (iii) daylight duration.We attribute the findings to the effects of the availability heuristic and mood on investors’ behavior.

Suggested Citation

  • Doron Kliger & Andrey Kudryavtsev, 2016. "The Availability Heuristic and other Psychological Aspects of Investors’ Reactions to Company-Specific Events," World Scientific Book Chapters, in: Itzhak Venezia (ed.), Behavioral Finance WHERE DO INVESTORS' BIASES COME FROM?, chapter 11, pages 287-316, World Scientific Publishing Co. Pte. Ltd..
    • Handle: RePEc:wsi:wschap:9789813100091_0011
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    Cited by:

    1. Itzhak Venezia, 2018. "Lecture Notes in Behavioral Finance," World Scientific Books, World Scientific Publishing Co. Pte. Ltd., number 10751, August.

    More about this item

    Keywords

    Behavioral Finance; Rationality; Experimental Finance; Reference Points; Professionals; Gender; Culture and Finance; Equity Premium;
    All these keywords.

    JEL classification:

    • D91 - Microeconomics - - Micro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making

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