Regulating Irrational Exuberance and Anxiety in Securities Markets

Abstract

This chapter analyzes the regulatory implications of irrational exuberance and anxiety in securities markets. U.S. federal securities laws mandate the disclosure of certain information, but regulate only the cognitive form and content of that information. An important and unstudied question is how to regulate securities markets where some investors respond not only cognitively to the form and content of information, but also emotionally to the form and content of information. This chapter investigates that question when some investors feel exuberance or anxiety that is unjustified by cognitive processing of the available information. This chapter develops the implications for mandatory securities disclosure of irrational exuberance and anxiety.

Discretionary Accounting Narratives in Contemporary Corporate Reporting: Review and Framework

“…Stanton and Stanton (2002) identify marketing, political economy, and accountability as additional perspectives adopted in analyzing annual reports. Huang (2003) points to empirical evidence from marketing and consumer behavior studies regarding firm manipulation of consumer perceptions of risk, as potentially relevant for accounting research.…”

The Legal Framework for Financial Advertising: Curbing Behavioural Exploitation

“…Huhmann and Bhattacharyya (2005), p 309. 39 Feigenson and Park (2006), pp 144-145; Huang (2003), pp 31-34. 40 Jordan (2004), pp 87, 93, 97, 165, 192;cf.…”

“… Cox and de Goeij (2018), p 19. 109 This is not an easy determination since (a) emotions and cognitions always work together when investors take investment decisions and (b) informative content in advertisements regularly addresses investors' cognitions as well as emotions; cf Huang (2003),. p 45.…”

Hot Markets, Sociocognitive Cues, and New Market Entry in the U.S. Venture Capital Industry

“…In other words, when the overall capital market is hot, investors are more likely to commit overly risky behaviors, resulting in the so-called ''irrational exuberance'' (Shiller, 2000(Shiller, , 2015. Such a phenomenon has been attributed to investors' cognitive biases or emotional responses that are unjustified by rational processing of the available information (Huang, 2003) and blamed as a root cause for speculative bubbles in worldwide asset markets (Almudhaf, 2017;Fromlet, 2001).…”