Growth opportunity bias
Growth opportunity bias
Growth opportunity bias (GOB ), measured as the difference between market and fundamental values of a firm’s growth opportunity, has an ability to predict future stock returns. In the portfolio sort, low-GOB firms earn higher returns than high-GOB firms, which is unexplained by the common asset pricing models. Cross-sectional regression results also confirm GOB ’s power in
predicting stock returns. Given the inability of the risk-based methods in explaining the GOB premium, we turn to behavioral approaches to gain a better understanding of the anomaly. We find that the GOB premium is more pronounced when investor sentiment is high or when limits-to-arbitrage
is severe, which suggests that the GOB is more likely to capture behavioral biases than systematic risk.
nt is high or when limits-to-arbitrage is severe, which suggests that
the GOB is more likely to capture behavioral biases than systematic risk.
Gong, Cynthia M.
4fd846a0-a5f6-407b-bb3f-c8a1ebbe50ed
Li, Xindan
bd38efc6-6e89-400f-99f6-a8a01ea3859c
Luo, Di
cc1b0fa7-f630-45dc-ab05-495f9023148f
Zhaod, Huainan
74751193-f089-4f25-a8e7-12c50d441af2
Gong, Cynthia M.
4fd846a0-a5f6-407b-bb3f-c8a1ebbe50ed
Li, Xindan
bd38efc6-6e89-400f-99f6-a8a01ea3859c
Luo, Di
cc1b0fa7-f630-45dc-ab05-495f9023148f
Zhaod, Huainan
74751193-f089-4f25-a8e7-12c50d441af2
Gong, Cynthia M., Li, Xindan, Luo, Di and Zhaod, Huainan
(2019)
Growth opportunity bias.
Behavioral Finance Working Group Conference, Queen Mary University, London, United Kingdom.
06 - 07 Jun 2019.
44 pp
.
(In Press)
Record type:
Conference or Workshop Item
(Paper)
Abstract
Growth opportunity bias (GOB ), measured as the difference between market and fundamental values of a firm’s growth opportunity, has an ability to predict future stock returns. In the portfolio sort, low-GOB firms earn higher returns than high-GOB firms, which is unexplained by the common asset pricing models. Cross-sectional regression results also confirm GOB ’s power in
predicting stock returns. Given the inability of the risk-based methods in explaining the GOB premium, we turn to behavioral approaches to gain a better understanding of the anomaly. We find that the GOB premium is more pronounced when investor sentiment is high or when limits-to-arbitrage
is severe, which suggests that the GOB is more likely to capture behavioral biases than systematic risk.
nt is high or when limits-to-arbitrage is severe, which suggests that
the GOB is more likely to capture behavioral biases than systematic risk.
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Accepted/In Press date: March 2019
Venue - Dates:
Behavioral Finance Working Group Conference, Queen Mary University, London, United Kingdom, 2019-06-06 - 2019-06-07
Identifiers
Local EPrints ID: 432326
URI: http://eprints.soton.ac.uk/id/eprint/432326
PURE UUID: 9ad40a1e-e417-4198-9c2c-2cd662125cd4
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Date deposited: 10 Jul 2019 16:30
Last modified: 16 Mar 2024 04:28
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Contributors
Author:
Cynthia M. Gong
Author:
Xindan Li
Author:
Di Luo
Author:
Huainan Zhaod
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