The Availability Heuristic and Investors' Reaction to Company-Specific Events

Kliger, Doron; Kudryavtsev, Andrey

doi:10.1080/15427561003591116

Cited by 84 publications

(60 citation statements)

References 51 publications

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“…Subsequently, Huddart et al (2009) document that trading volumes are strikingly higher, in both economical and statistical terms, when the current stock price is higher (lower) than the previous fifty-two week high (low) price, the latter being widely-reported as a benchmark in the business press, and conclude that the increase in volume is driven by increased investor attention when a stock's price is outside of its usual trading range. Kliger and Kudryavtsev (2010) reveal that abnormal trading volumes following analyst recommendation upgrades (downgrades) are significantly higher if the latter are issued on the days when the general stock market index rises (falls). They explain this finding by the availability heuristic (Tversky and Kahneman 1973) 1 .…”

Section: Stock Trading Volumes and Their Connection To Stock Returnsmentioning

confidence: 99%

“…I join the rapidly growing strand of literature that deals with various behavioral factors affecting the trading volumes (e.g., Barber and Odean 2008;Huddart et al 2009;Kliger and Kudryavtsev 2010) and analyze the effect of the gambler's fallacy on the latter. The gambler's fallacy (Laplace [1796] 1951) is one of the oldest documented psychological biases and refers to an (incorrect) belief in negative autocorrelation of random sequences that are in fact non-autocorrelated.…”

Section: Introductionmentioning

confidence: 99%

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The Effect of Stock Return Sequences on Trading Volumes

Kudryavtsev

2017

IJFS

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The present study explores the effect of the gambler's fallacy on stock trading volumes. I hypothesize that if a stock's price rises (falls) during a number of consecutive trading days, then the gambler's fallacy may cause at least some of the investors to expect that the stock's price "has" to subsequently fall (rise), and thus, to increase their willingness to sell (buy) the stock, resulting in a stronger degree of disagreement between the investors and a higher-than-usual stock trading volume on the first day when the stock's price indeed falls (rises). Employing a large sample of daily price and trading volume data, I document that following relatively long sequences of the same-sign stock returns, on the days when the sign is reversed, the trading activity in the respective stocks is abnormally high. Moreover, average abnormal trading volumes gradually and significantly increase with the length of the preceding return sequence. The effect is slightly more pronounced following the sequences of negative stock returns, and remains significant after controlling for other potentially influential factors, including contemporaneous and lagged actual and absolute stock returns, historical stock returns and volatilities, and company-specific events, such as earnings announcements and dividend payments.

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Section: Stock Trading Volumes and Their Connection To Stock Returnsmentioning

confidence: 99%

Section: Introductionmentioning

confidence: 99%

The Effect of Stock Return Sequences on Trading Volumes

Kudryavtsev

2017

IJFS

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“…The availability heuristic has been found to operate across a wide range of situations, including risk assessment (Folkes, 1988; Agans and Shaffer, 1994; Keller et al, 2006; Sunstein, 2006), education (Billings and Schaalman, 1980; Fox, 2006), ethical decision making (Hayibor and Wasieleski, 2009), financial decision making (Kliger and Kudryavtsev, 2010), judgments of the self and others (Cervone, 1989; Schwarz et al, 1991; Rothman and Hardin, 1997), mental imagery (Carroll, 1978), and subliminal priming (Gabrielcik and Fazio, 1984). Thus it would not be surprising to observe availability effects in musical memory.…”

Section: Introductionmentioning

confidence: 99%

Memory for musical tones: the impact of tonality and the creation of false memories

2014

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Although the relation between tonality and musical memory has been fairly well-studied, less is known regarding the contribution of tonal-schematic expectancies to this relation. Three experiments investigated the influence of tonal expectancies on memory for single tones in a tonal melodic context. In the first experiment, listener responses indicated superior recognition of both expected and unexpected targets in a major tonal context than for moderately expected targets. Importantly, and in support of previous work on false memories, listener responses also revealed a higher false alarm rate for expected than unexpected targets. These results indicate roles for tonal schematic congruency as well as distinctiveness in memory for melodic tones. The second experiment utilized minor melodies, which weakened tonal expectancies since the minor tonality can be represented in three forms simultaneously. Finally, tonal expectancies were abolished entirely in the third experiment through the use of atonal melodies. Accordingly, the expectancy-based results observed in the first experiment were disrupted in the second experiment, and disappeared in the third experiment. These results are discussed in light of schema theory, musical expectancy, and classic memory work on the availability and distinctiveness heuristics.

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“…Overall, the results demonstrate that the event-day inattention effect on stock price drifts following recommendation revisions decreases with market capitalization. 7 The sample partition approach by both market capitalization and historical stock volatility is similar to the one employed by Kliger and Kudryavtsev (2010). CAR statistics for high and low volatility stocks.…”

Section: The Event-day Inattention Effect On Post-recommendation Prmentioning

confidence: 99%

Effect of investor inattention on price drifts following analyst recommendation revisions

Kudryavtsev

2018

Int. J Fin Econ

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The study explores stock price dynamics after analyst recommendation revisions. Following the previous literature that documents significant post‐recommendation stock price drifts and attributes them to investor inattention to company‐specific events, I hypothesize that if on the day when a recommendation revision with respect to a stock was issued, the sign of the stock's abnormal return was opposite to the direction of the revision, then it means that investors were especially inattentive to the revision and that the subsequent price drift should be more pronounced. Analysing a large sample of analyst recommendation revisions, I document that recommendation revisions accompanied by the opposite‐sign event‐day abnormal returns are followed by significantly greater post‐event price drifts in the direction of the revision, the magnitude of the drifts increasing for longer post‐event periods. This effect is stronger for small and more volatile stocks and remains robust after accounting for additional company‐specific (size, Market Model beta, and historical volatility) and event‐specific (number of recommendation categories changed in the revision and analyst experience) factors.

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The Availability Heuristic and Investors' Reaction to Company-Specific Events

Cited by 84 publications

References 51 publications

The Effect of Stock Return Sequences on Trading Volumes

The Effect of Stock Return Sequences on Trading Volumes

Memory for musical tones: the impact of tonality and the creation of false memories

Effect of investor inattention on price drifts following analyst recommendation revisions

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