Working Papers
"Sample Size Neglect and Biases in Beliefs: Evidence from the Field", with R. Kozhan and C. Mavis, 2025. Coming soon!
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.
“Opportunistic Borrowing Before Default? A New Test Using Multiple Delinquent Credit Cards”, with N. Lyman, M. Pagel and N. Stewart, 2025.
Abstract: We investigate whether credit card holders borrow opportunistically prior to defaulting on their credit card debt. Our analysis focuses on borrowers with multiple credit cards, employing borrower-by-billing-cycle (year-month) fixed effects to control for unobserved time-variant borrower-specific factors that influence delinquency and default. Under strategic default, we expect borrowers to opportunistically utilize available credit on the cards that are eventually charged off, relative to those that are not, when they simultaneously become delinquent on multiple cards. Contrary to this expectation, we find that borrowers reduce their borrowing on delinquent cards that are ultimately charged off compared to their other delinquent cards that are not charged off. These findings suggest that non-economic factors play a significant role in mitigating strategic defaults in the credit card market. (SSRN)
“Subjectively Salient: Contrast Effects in Investor Responses to Stock Returns”, with J. Guo and N. Stewart, 2024.
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, forthcoming.
"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, forthcoming.
"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.