How value-glamour investors use financial information: UK evidence of investor's confirmation bias

Chau Doung; Gioia Pescetto; Daniel Santamaria

doi:10.1080/1351847X.2012.722117

How value-glamour investors use financial information: UK evidence of investor's confirmation bias

Chau Doung, Gioia Pescetto, Daniel Santamaria

Research output: Contribution to journal › Article › peer-review

28 Citations (Scopus)

148 Downloads (Pure)

Abstract

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.

Original language	English
Pages (from-to)	524-549
Number of pages	25
Journal	The European Journal of Finance
Volume	20
Issue number	6
Early online date	7 Nov 2012
DOIs	https://doi.org/10.1080/1351847X.2012.722117
Publication status	Published - 2014
Externally published	Yes

Bibliographical note

This 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

Copyright © and Moral Rights are retained by the author(s) and/ or other copyright owners. A copy can be downloaded for personal non-commercial research or study, without prior permission or charge. This item cannot be reproduced or quoted extensively from without first obtaining permission in writing from the copyright holder(s). The content must not be changed in any way or sold commercially in any format or medium without the formal permission of the copyright holders.

Keywords

value–glamour investing
financial statement analysis
contextual fundamental analysis
market efficiency
behavioural finance
confirmation bias

Access to Document

10.1080/1351847X.2012.722117

Post-PrintAccepted author manuscript, 824 KBLicence: Unspecified

Daniel Santamaria
- Research Centre for Financial & Corporate Integrity - Associate Professor (Research)
Person: Teaching and Research

Cite this

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title = "How value-glamour investors use financial information: UK evidence of investor's confirmation bias",

abstract = "The paper investigates investor{\textquoteright}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{\textquoteright}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.",

keywords = "value–glamour investing, financial statement analysis, contextual fundamental analysis, market efficiency, behavioural finance, confirmation bias",

author = "Chau Doung and Gioia Pescetto and Daniel Santamaria",

note = "This 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 Copyright {\textcopyright} and Moral Rights are retained by the author(s) and/ or other copyright owners. A copy can be downloaded for personal non-commercial research or study, without prior permission or charge. This item cannot be reproduced or quoted extensively from without first obtaining permission in writing from the copyright holder(s). The content must not be changed in any way or sold commercially in any format or medium without the formal permission of the copyright holders. ",

year = "2014",

doi = "10.1080/1351847X.2012.722117",

language = "English",

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journal = "The European Journal of Finance",

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N1 - This 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 Copyright © and Moral Rights are retained by the author(s) and/ or other copyright owners. A copy can be downloaded for personal non-commercial research or study, without prior permission or charge. This item cannot be reproduced or quoted extensively from without first obtaining permission in writing from the copyright holder(s). The content must not be changed in any way or sold commercially in any format or medium without the formal permission of the copyright holders.

PY - 2014

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N2 - 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.

AB - 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.

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KW - contextual fundamental analysis

KW - market efficiency

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JO - The European Journal of Finance

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ER -

How value-glamour investors use financial information: UK evidence of investor's confirmation bias

Abstract

Bibliographical note

Keywords

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Daniel Santamaria

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