Journal of Financial Economics Vol. 65 No. 3 2002
Predicting the next step of a random walk: experimental evidence of regime-shifting beliefs
Abstract
Barberis et al. (J. Financial Econ. 49 (1998) 307), construct a model in which investors use the prevalence of past trend reversals as an indicator of the likelihood of future reversals. While such “regime-shifting” beliefs are consistent with a variety of psychological theories, other contrary predictions are consistent with the same theories. We report two experiments with MBA-student participants that strongly support the existence of regime-shifting beliefs. We conclude that regime-shifting models can provide a useful framework for understanding market anomalies, including underreactions to earnings changes and overreactions to long-term earnings trends.
- DOI
- 10.1016/s0304-405x(02)00147-2
- Volume
- 65
- Issue
- 3
- Pages
- 397-414
- Language
- en
- Sources
- bibtex:phds-export.bib openalex crossref