Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/187727
Authors: 
Kudryavtsev, Andrey
Year of Publication: 
2017
Citation: 
[Journal:] European Financial and Accounting Journal [ISSN:] 1805-4846 [Volume:] 12 [Year:] 2017 [Issue:] 4 [Pages:] 83-96
Abstract: 
This study explores the effect of the gambler's fallacy on stock returns. I hypothesize that if during a number of consecutive trading days, a stock's return is positive (negative), then due to the gambler's fallacy, at least some of the investors may believe that the stock's price "has" to subsequently fall (rise), and thus, to increase their willingness to sell (buy) the stock, resulting in negative (positive) abnormal market-adjusted stock returns. Employing a large sample of daily stock price data, I was able to document that following relatively long sequences of positive (negative) stock returns, abnormal stock returns are on average significantly negative (positive), indicating the existence of the price pressure towards the return sign reversal. Moreover, the magnitude of the effect is stronger for longer return sequences. The effect is found to be more pronounced for smaller and more volatile stocks, and is robust to other relevant company - and stock-specific factors.
Subjects: 
Abnormal Stock Returns
Gambler's Fallacy
Investment Decisions
Price Reversals
Stock Return Sequences
JEL: 
G11
G12
G19
Persistent Identifier of the first edition: 
Document Type: 
Article
Social Media Mentions:

Files in This Item:
File
Size
400.01 kB





Items in EconStor are protected by copyright, with all rights reserved, unless otherwise indicated.