Working Papers
"Beyond Firm Characteristics: Forecaster Heterogeneity Explains a Large Portion of Over and Underreaction", with C. Frydman and M. Kilic, 2025.
Abstract: A vibrant literature in finance seeks to understand whether subjective expectations exhibit underreaction or overreaction. This literature has focused almost exclusively on characteristics of firms (in the field) or artificial assets (in the lab). We argue that the literature has neglected a substantial source of variation in over and underreaction: forecaster characteristics. Using IBES data, we show that forecaster heterogeneity explains roughly the same amount of variation in over and underreaction as firm heterogeneity. We obtain a similar result using existing laboratory data. Our results suggest that the search for drivers of over and underreaction needs to include forecaster characteristics. (SSRN)
"Sample Size Neglect and Biases in Beliefs: Evidence from the Field", with R. Kozhan and C. Mavis, 2025.
Abstract: Larger samples yield more precise estimates by reducing variability around the true value. We examine whether sophisticated agents adhere to this foundational statistical principle when forming beliefs in a real-world, high-stakes setting. Specifically, we use tennis betting markets as a quasi-natural laboratory that offers three key advantages: bookmakers are highly incentivized professionals; their beliefs can be directly inferred from their quoted odds; and match length varies exogenously across tournaments, playing a role analogous to sample size, as longer matches reduce randomness, making outcomes more reliably reflective of underlying skill. We find that professional bookmakers exhibit sample size neglect, leading to systematic biases in their beliefs and lower profits. A laboratory experiment shows that this bias is twice as large among students, who are less sophisticated with lower incentives than bookmakers. Moreover, we find that match length is incorporated in beliefs more strongly when it becomes more salient. Finally, extending to financial markets, we show that while the consensus analyst forecast is more predictive of earnings when based on more analysts, stock prices seem to underreact to the component of forecasts attributable to analyst coverage. Overall, our results suggest that sample size neglect leads to systematic biases in the beliefs of sophisticated agents even in relatively simple settings. (SSRN)
“Do Borrowers Exploit Credit Card Default as Insurance? A New Test of Opportunistic Borrowing”, with N. Lyman, M. Pagel and N. Stewart, 2025.
Abstract: Credit card delinquencies and default may be a form of insurance for poorer households. This brings about potential for moral hazard: do credit card holders borrow opportunistically prior to defaulting on their credit card debt? To answer this question, we look at borrowers who go delinquent on multiple credit cards simultaneously, with some of them eventually being charged off. To control for all unobserved time-variant borrower-specific factors that influence delinquency and default, we use borrower-by-billing-cycle (year-month) fixed effects. We find no evidence that users borrow more or repay less on the delinquent cards that are ultimately charged off versus those that are not. We then show in a structural model that agents must believe that the sensitivity of default penalties to the borrowed amounts are very large. This is not consistent with, first, low recovery rates in the debt collection market, and second, additional evidence showing that the defaulted debt amounts have no impact on credit scores, limits, or APRs. (SSRN)
“Subjectively Salient: Contrast Effects in Investor Responses to Stock Returns”, with J. Guo and N. Stewart, 2024. R&R, Management Science.
Abstract: Stock returns over fixed time intervals, such as daily returns, are typically assumed to be objective metrics perceived uniformly by all investors. We show, however, that investors’ sensitivity to a given daily return nearly doubles when that return is subjectively salient, standing out relative to the investor’s prior personal experiences with daily returns from the stocks in their portfolio. This effect is particularly pronounced when investors are more likely to vividly recall their past return experiences. These results highlight that contrast effects introduce considerable subjectivity in how stock returns are perceived, creating variability in trading decisions. More broadly, our findings reveal a novel behavioral channel through which personal experiences can influence the propagation of price-based information in financial markets. (SSRN)
Publications
"Seeing is Believing: Tourism and Foreign Equity Investments" with C. Cuculiza, A. Kumar and L. Yang , Journal of Banking and Finance, 2025, 178, Article 107498. (Link).
"It Takes Two to Tango: Spousal Risk Preferences and CEO Risk-Taking Behavior", with C. Cuculiza, A., Kumar and L. Yang, Journal of Corporate Finance, 2024, Vol. 86, Article 102584. (Link)
"Exchange-Traded Funds and Real Investment", with F. W. Li, X. Liu, A. Subrahmanyam and C. Sun, Review of Financial Studies, 2023, 36, 1043-1093.
"Do Stock-Level Experienced Returns Affect Security Selection?", with S. Mitali, Journal of Banking and Finance, 2023, forthcoming.
"The Effects of Personality and IQ on Portfolio Outcomes", with Firth, C., Stewart, N., and Leake, D. 2023, Finance Research Letters , 51, 103464
"Terrorist Attacks, Analyst Sentiment, and Earnings Forecasts" with C. Cuculiza, A. Kumar and A. Maligkris, Management Science, 2020, 67, 2579-2608.
"Information Characteristics and Errors in Expectations: Experimental Evidence", with G. H. Harrison, M. Lau and D. Read, Journal of Financial and Quantitative Analysis, 2017, 52, 737-750.
"Corporate Governance and Firm-Specific Stock Price Crashes", with P. Andreou, C. Louca and J. Horton, European Financial Management, 2016, 22, 916-956.
"Investor Sentiment, Beta and the Cost of Equity Capital", with J. A. Doukas and A. Subrahmanyam, Management Science, 2015, 62, 347-367.
"Ambiguity Aversion and Stock Market Participation: An Empirical Analysis", with R. Harris and R. Zhang, Journal of Banking and Finance, 2015, 58, 57-70.
"Subjective Bayesian Beliefs", with G. H. Harrison, M. Lau and D. Read, Journal of Risk and Uncertainty, 2015, 50, 35-54.
"Ambiguity Aversion, Company Size and the Pricing of Earnings Forecasts" with E. Galariotis and D. Read, European Financial Management, 2014, 20, 633-651.
"Cognitive Dissonance, Sentiment and Momentum" with J. Doukas and A. Subrahmanyam, Journal of Financial and Quantitative Analysis, 2013, 48, 245-275.
Inactive working papers
"Style Investing and Commonality in Liquidity", with O. Klein and V. Raman, 2018.
"Managerial Sentiment, and Corporate Policies", with A. Kumar and A. Maligkris, 2017.