This study examines the stock market forecasts and portfolio allocation decisions of small individual investors, based on survey data for 1987-1994. When investors are bullish, they increase their equity holdings; when investors are bearish, they decrease equity holdings. The surveyed investors are unable to time the stock market successfully. However, the shifts in their portfolios reflect past market movements and are consistent with positive feedback trading. I. Introduction There can be no doubt that, over short horizons, stock price changes are highly unpredictable. Nevertheless, many individuals discover seeming in past prices and trade based on the expectation that the trends will persist. De Long, Shleifer, Summers, and Waldmann (1990) call these investors positive feedback traders.

We show that bidding firms consider target board characteristics when deciding takeover offer types and initial offer premiums. We study a sample of 436 proposed negotiated mergers and bypass offers. Firms with individuals holding the titles of both chief executive officer (CEO) and board chair are more likely to receive bypass offers. These offers are more likely to be successful and generate higher target shareholder gains over the takeover offer period. When the target's board is independent, the target is less likely to receive a high premium and the offer is less likely to succeed.

We show that bidding firms consider target board characteristics when deciding takeover offer types and initial offer premiums. We study a sample of 436 proposed negotiated mergers and bypass offers. Firms with individuals holding the titles of both chief executive officer (CEO) and board chair are more likely to receive bypass offers. These offers are more likely to be successful and generate higher target shareholder gains over the takeover offer period. When the target's board is independent, the target is less likely to receive a high premium and the offer is less likely to succeed.

Unlike other investments in the U.S., research and development budgets are not depreciated but expensed. Thus, pre-tax reported earnings fluctuate dollar-for-dollar with changes in R&D budgets. Because executives know more about the firm than outsiders, they may adjust R&D budgets in order to manage accounting earnings and stock prices. Discretionary changes in R&D may also reflect managerial incentives, taxes, and free cash flow. We study a panel of 100 U.S. companies with large R&D budgets for the decade between 1977 and 1986. On average, R&D budget adjustments reduce the anticipated gap between analysts' earnings forecasts and reported income. In the cross-section of firms, more gap closure is associated with high trading volume and high business risk. Less earnings management occurs if the CEO and institutional investors own an important fraction of the shares.

The expectations theory of the term structure is well known to give wrong signals as to the future course of long-term interest rates. One explanation involves rational time-varying term premia. However, the “anomaly” may also be due to inflation forecast errors. We study survey forecasts of inflation. It seems that the respondents' forecasts are insufficiently adaptive. Interest rates reflect expectations similar to the inflation forecasts. As a result, past survey forecast errors reliably predict premia on U.S. Government Bonds.