Stock Market Mispricing: Inflation Illusion or Resale Option?

Chen, Carl R.; Lung, Peter P.; Wang, F. Albert

doi:10.2139/ssrn.890763

Cited by 2 publications

(1 citation statement)

References 33 publications

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“…As we already pointed out, there are already some studies in the literature analyzing the properties of both the EU and the US consumers expectations series 15 . However, most of them employ data up to 2006, hence it is interesting to see whether the results change with an updated dataset 16 . The section then continues by proposing our strategy to assess 'weak rationality'in the form of strategic stickiness.…”

Section: Resultsmentioning

confidence: 99%

Money Illusion and Rational Expectations: New Evidence from Well Known Survey Data

Maugeri

2010

SSRN Journal

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This paper provides further evidence in favor of less than fully rational expectations by making use two instruments, one quite well known, and the other more novel, namely survey data on inflation expectations and Smooth Transition Error Correction Models (STECMs). We use the so called 'probabilistic approach' to derive a quantitative measure of expected inflation from qualitative survey data for France, Italy and the UK. The United States are also included by means of the Michigan Survey of Consumers' expectations series. First, we perform the standard tests to assess the 'degree of rationality' of consumers' inflation forecasts. Afterwards, we specify a STECM of the forecast error, and we quantify the strategic stickiness in the long-run adjustment process of expectations stemming from money illusion. Our evidence is that consumers' expectations do not generally conform to the prescriptions of the rational expectations hypothesis. In particular, we find that the adjustment process towards the long-run equilibrium is highly nonlinear and it is asymmetric with respect to the size of the past forecast errors. We interpret these findings as supporting the money illusion hypothesis.

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Section: Resultsmentioning

confidence: 99%

Money Illusion and Rational Expectations: New Evidence from Well Known Survey Data

Maugeri

2010

SSRN Journal

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Heterogeneous beliefs, investor sentiment and A-H share premium

Zheng

Wang

Tian

2011

2011 International Conference on E-Business and E-Government (ICEE)

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Based on monthly data of dual-listed companies in A share and H share markets from November 2006 to November 2009, this paper provides an explanation for A-H share premium by introducing two behavioral factors: heterogeneous beliefs and investor sentiment. The results show that, under the short-sales constraints of A share market, the stronger the heterogeneous beliefs, the higher the A-H premium rate.The higher the investor sentiment of A share market, the higher the A-H premium rate. Under higher investor sentiment, A shares of stocks whose intrinsic value is difficult to estimate are more likely to be overpriced, leading to a higher A-H premium rate. Moreover, higher investor sentiment can strengthen the effect of heterogeneous beliefs on A-H premium rate. Overall, theories on heterogeneous beliefs and investor sentiment can well explain the irrational phenomenon of A-H share premium.

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Stock Market Mispricing: Inflation Illusion or Resale Option?

Cited by 2 publications

References 33 publications

Money Illusion and Rational Expectations: New Evidence from Well Known Survey Data

Money Illusion and Rational Expectations: New Evidence from Well Known Survey Data

Heterogeneous beliefs, investor sentiment and A-H share premium

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