Properties of expectation biases: Optimism and overconfidence

Yusuke Kinari

Research output: Contribution to journalArticle

1 Citation (Scopus)

Abstract

This study examines the properties of expectation biases using 14 sets of panel surveys that required participants to forecast the NIKKEI 225 over three forecasting horizons: one-day, one-week, and one-month. Constructing proxies for optimism and overconfidence as the expectation biases, this study shows that participants, on average, had pessimistic beliefs for the one-day and optimistic beliefs for one-week and one-month horizons, while they had overconfident beliefs for all three horizons. It also shows that participants tended to become more optimistic and overconfident at longer horizons. Moreover, the degree of optimism or pessimism varied considerably across samples taken at different times, while overconfidence remained stable. Furthermore, this study finds a negative correlation between optimism and the return on the NIKKEI 225, demonstrating that participants became optimistic when the NIKKEI 225 decreased. A negative correlation would be expected if people formed expectations following a random walk; however, this study rejects this hypothesis.

Original languageEnglish
Pages (from-to)32-49
Number of pages18
JournalJournal of Behavioral and Experimental Finance
Volume10
DOIs
Publication statusPublished - Jun 1 2016

Fingerprint

Optimism
Optimism bias
Overconfidence
Random walk
Pessimism

All Science Journal Classification (ASJC) codes

  • Finance

Cite this

Properties of expectation biases : Optimism and overconfidence. / Kinari, Yusuke.

In: Journal of Behavioral and Experimental Finance, Vol. 10, 01.06.2016, p. 32-49.

Research output: Contribution to journalArticle

@article{150a52d7d274477cad47fdb6b16a469f,
title = "Properties of expectation biases: Optimism and overconfidence",
abstract = "This study examines the properties of expectation biases using 14 sets of panel surveys that required participants to forecast the NIKKEI 225 over three forecasting horizons: one-day, one-week, and one-month. Constructing proxies for optimism and overconfidence as the expectation biases, this study shows that participants, on average, had pessimistic beliefs for the one-day and optimistic beliefs for one-week and one-month horizons, while they had overconfident beliefs for all three horizons. It also shows that participants tended to become more optimistic and overconfident at longer horizons. Moreover, the degree of optimism or pessimism varied considerably across samples taken at different times, while overconfidence remained stable. Furthermore, this study finds a negative correlation between optimism and the return on the NIKKEI 225, demonstrating that participants became optimistic when the NIKKEI 225 decreased. A negative correlation would be expected if people formed expectations following a random walk; however, this study rejects this hypothesis.",
author = "Yusuke Kinari",
year = "2016",
month = "6",
day = "1",
doi = "10.1016/j.jbef.2016.02.003",
language = "English",
volume = "10",
pages = "32--49",
journal = "Journal of Behavioral and Experimental Finance",
issn = "2214-6350",
publisher = "Elsevier BV",

}

TY - JOUR

T1 - Properties of expectation biases

T2 - Optimism and overconfidence

AU - Kinari, Yusuke

PY - 2016/6/1

Y1 - 2016/6/1

N2 - This study examines the properties of expectation biases using 14 sets of panel surveys that required participants to forecast the NIKKEI 225 over three forecasting horizons: one-day, one-week, and one-month. Constructing proxies for optimism and overconfidence as the expectation biases, this study shows that participants, on average, had pessimistic beliefs for the one-day and optimistic beliefs for one-week and one-month horizons, while they had overconfident beliefs for all three horizons. It also shows that participants tended to become more optimistic and overconfident at longer horizons. Moreover, the degree of optimism or pessimism varied considerably across samples taken at different times, while overconfidence remained stable. Furthermore, this study finds a negative correlation between optimism and the return on the NIKKEI 225, demonstrating that participants became optimistic when the NIKKEI 225 decreased. A negative correlation would be expected if people formed expectations following a random walk; however, this study rejects this hypothesis.

AB - This study examines the properties of expectation biases using 14 sets of panel surveys that required participants to forecast the NIKKEI 225 over three forecasting horizons: one-day, one-week, and one-month. Constructing proxies for optimism and overconfidence as the expectation biases, this study shows that participants, on average, had pessimistic beliefs for the one-day and optimistic beliefs for one-week and one-month horizons, while they had overconfident beliefs for all three horizons. It also shows that participants tended to become more optimistic and overconfident at longer horizons. Moreover, the degree of optimism or pessimism varied considerably across samples taken at different times, while overconfidence remained stable. Furthermore, this study finds a negative correlation between optimism and the return on the NIKKEI 225, demonstrating that participants became optimistic when the NIKKEI 225 decreased. A negative correlation would be expected if people formed expectations following a random walk; however, this study rejects this hypothesis.

UR - http://www.scopus.com/inward/record.url?scp=84960920652&partnerID=8YFLogxK

UR - http://www.scopus.com/inward/citedby.url?scp=84960920652&partnerID=8YFLogxK

U2 - 10.1016/j.jbef.2016.02.003

DO - 10.1016/j.jbef.2016.02.003

M3 - Article

AN - SCOPUS:84960920652

VL - 10

SP - 32

EP - 49

JO - Journal of Behavioral and Experimental Finance

JF - Journal of Behavioral and Experimental Finance

SN - 2214-6350

ER -