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Essays in financial economics: mental accounting and selling decisions of individual investors; analysts' reputational concerns and underreaction to public news

Lim, Seongyeon
http://rave.ohiolink.edu/etdc/view?acc_num=osu1058811557

Abstract Details

2004, Doctor of Philosophy, Ohio State University, Business Administration.
This dissertation studies how psychological and reputational considerations affect the behavior of individual investors and security analysts. The first essay examines investors' preference for framing their gains and losses using trading records of individual investors at a large discount brokerage firm. I find that investors tend to bundle sales of losers on the same day and separate sales of winners over different days. The result is consistent with the principles of mental accounting (Thaler (1985)), according to which individuals attain higher utility by integrating losses and segregating gains. Alternative explanations based on tax-loss selling strategies, margin calls, the number of winners and losers in a portfolio, the difference in the potential proceeds from selling winners and losers, and correlations among winners and losers in a portfolio do not fully account for the observed behavior. Logistic analyses show that investors are more likely to sell multiple stocks when they realize losses, after controlling for various factors including market and portfolio returns, overall sales activity during the day, and investor characteristics. The second essay provides a theoretical and empirical analysis of analysts' incentives to incorporate public information in their earnings forecasts. The model show that analysts may underreact to public news due to their reputational concerns, and that an analyst's incentive to underreact to public information 1) decreases with the size of unexpected news; 2) decreases with the uncertainty of earnings; 3) increases with the analyst's initial reputation; and 4) increases with how much the analyst values his/her current reputation relative to forecast accuracy. I test the implications of the model and find that analysts underreact to earnings news less when the size of unexpected earnings is large, when there is more uncertainty about the earnings, and when they have long track records. The model also implies that the strategic biases of analysts can lead to divergent responses of forecasts to public announcements. Furthermore, the stock market may react to revisions in analysts' forecasts made in response to information that has already been incorporated into stock prices.
David Hirshleifer (Advisor)
106 p.
Business Administration, General
mental accounting; prospect theory; investor behavior; analyst forecasts; underreaction

Recommended Citations

Citations

  • Lim, S. (2004). Essays in financial economics: mental accounting and selling decisions of individual investors; analysts' reputational concerns and underreaction to public news [Doctoral dissertation, Ohio State University]. OhioLINK Electronic Theses and Dissertations Center. http://rave.ohiolink.edu/etdc/view?acc_num=osu1058811557

    APA Style (7th edition)

  • Lim, Seongyeon. Essays in financial economics: mental accounting and selling decisions of individual investors; analysts' reputational concerns and underreaction to public news. 2004. Ohio State University, Doctoral dissertation. OhioLINK Electronic Theses and Dissertations Center, http://rave.ohiolink.edu/etdc/view?acc_num=osu1058811557.

    MLA Style (8th edition)

  • Lim, Seongyeon. "Essays in financial economics: mental accounting and selling decisions of individual investors; analysts' reputational concerns and underreaction to public news." Doctoral dissertation, Ohio State University, 2004. http://rave.ohiolink.edu/etdc/view?acc_num=osu1058811557

    Chicago Manual of Style (17th edition)

osu1058811557
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© 2004, all rights reserved.
This open access ETD is published by The Ohio State University and OhioLINK.