The paper investigates investor’s behaviour in the context of value–glamour investing and fundamental analysis, and provides a direct test of the confirmation bias by bringing together the evidence from several strands of literature into a well-defined framework of investor behaviour. The empirical evidence presented is in line with a model of investor’s asymmetric reaction to good and bad news due to confirmation bias. Pessimistic value investors typically under-react to good financial information, but they process bad information rationally or over-confidently. On the contrary, glamour investors are often too optimistic to timely update prices following bad financial information, but they are likely to fairly price or even over-react when receiving good information.
Bibliographical noteThis is an Accepted Manuscript of an article published by Taylor & Francis in The European Journal of Finance on 07/11/2012, available online: http://www.tandfonline.com/10.1080/1351847X.2012.722117
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- value–glamour investing
- financial statement analysis
- contextual fundamental analysis
- market efficiency
- behavioural finance
- confirmation bias
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