Misvaluation and Behavioral Bias in Financial Markets

Gokhale, Jayendra; Tremblay, Carol Horton; Tremblay, Victor J.

doi:10.1080/15427560.2015.1095756

Cited by 10 publications

(29 citation statements)

References 46 publications

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“…The Efficient Market Hypothesis (EMH) is based on the assumption that share prices reflect all available information in a context in which market agents are rational and there are no transaction costs (Famas, 1970). However, even under the assumption that market agents are rational, market constraints and psychological factors involving investors can lead to the occurrence of valuation or devaluation bias in share prices (Gokhale, Tremblay & Tremblay, 2015).…”

Section: Introductionmentioning

confidence: 99%

“…Various studies have found indications that quotation prices do not always follow the EMH assumptions regarding the immediate adjustment of prices to all available information (Aguiar, Sales & Sousa, 2008;Costa, 1994;De Bondt & Thaler, 1985;Jegadeesh & Titman, 1993;Gokhale et al, 2015;Rabelo & Ikeda, 2004). In more extreme and persistent situations, the formation of positive or negative bubbles can even occur [for example, Leone and Medeiros (2015) and Leybourne, Kim, and Taylor (2007)].…”

Section: Introductionmentioning

confidence: 99%

“…This study uses the innovative model developed by Gokhale et al (2015) (GTT from here on) in the Brazilian stock market to detect overreaction resulting from investor behavior and identify undervalued shares among the companies listed on the São Paulo Stock, Commodities, and Futures Exchange (BM&FBOVESPA) in the period from 2005 to 2016. It also analyzes the GTT model as a strategy for investing in shares in the Ibovespa and IBrA indices in the short and long term, as well as testing its robustness with time window simulations.…”

Section: Introductionmentioning

confidence: 99%

“…

The study sought to apply the model developed by Gokhale et al (2015) to identify the existence of overreaction and behavioral biases in the Brazilian stock market and analyze its performance as an investment strategy on the São Paulo Stock, Commodities, and Futures Exchange (BM&FBOVESPA) in the short term and long term, as well as test its robustness with time window simulations. The impacts of behavioral finance on capital markets can affect economic decisions, perpetuate or increase asset pricing anomalies, and in more extreme and persistent situations contribute to the formation of bubbles that can compromise the entire financial system of a country.

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mentioning

confidence: 99%

“…The study pioneers an innovative methodology in the Brazilian stock market for identifying behavioral biases and obtaining abnormal returns and higher returns than the Ibovespa. The research uses the model developed by Gokhale, Tremblay, and Tremblay (2015) in three samples with quotations data for Brazilian publicly-traded companies that compose the Ibovespa and IBrA in the period from 2005 to 2016. With the R statistical software, the Fundamental Valuation Index (FVI) was calculated for each sample share and each year.…”

mentioning

confidence: 99%

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Misvaluation and behavioral bias in the Brazilian stock market

Júnior

Medeiros

Caldas

et al. 2019

Rev. contab. finanç.

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The study sought to apply the model developed by Gokhale et al. (2015) to identify the existence of overreaction and behavioral biases in the Brazilian stock market and analyze its performance as an investment strategy on the São Paulo Stock, Commodities, and Futures Exchange (BM&FBOVESPA) in the short term and long term, as well as test its robustness with time window simulations. The impacts of behavioral finance on capital markets can affect economic decisions, perpetuate or increase asset pricing anomalies, and in more extreme and persistent situations contribute to the formation of bubbles that can compromise the entire financial system of a country. The study pioneers an innovative methodology in the Brazilian stock market for identifying behavioral biases and obtaining abnormal returns and higher returns than the Ibovespa. The research uses the model developed by Gokhale, Tremblay, and Tremblay (2015) in three samples with quotations data for Brazilian publicly-traded companies that compose the Ibovespa and IBrA in the period from 2005 to 2016. With the R statistical software, the Fundamental Valuation Index (FVI) was calculated for each sample share and each year. From the FVI index, the undervalued shares were identified, indicating that the sales price does not reflect their economic fundamentals, and portfolio simulations were carried out for investment over three months or the next year. The results indicate the possible existence of overreaction and behavioral biases in the Brazilian stock market, which lead to the possibility of higher abnormal returns than those of the Ibovespa. Similar to the US market, at the end of the 2006-2016 period simulated portfolios yielded more than 274%, while the Ibovespa yielded approximately 80%. The robustness tests attest to the effectiveness of the model. The various investment portfolios, simulated over different time horizons, yielded more than the Ibovespa on average. The study also confirmed the assumptions of Gokhale, Tremblay, and Tremblay (2015) regarding the model's inadequacy for short-term strategies.

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Section: Introductionmentioning

confidence: 99%