원문정보
초록
영어
We investigate the effects of arbitrageurs’ behavioral biases on cross-sectional equity returns under the assumption that arbitrageurs are Bayesian optimizers. We demonstrate that the profits of equity market neutral trading strategies are positively affected by overestimation, but do not find evidence of overprecision and self-attribution bias in these trading strategies. Of the last four decades since 1970, the effects of overconfidence on the profits of the trading strategies are the highest in the 2000s when arbitrage trading is active. Despite the active arbitrage trading, however, the potential profitability measured by alphas does not seem to be eroded away. As an explanation of why the performance of equity market neutral hedge portfolios appears to decrease significantly in the 2000s, we propose excess arbitrage trading driven by overconfidence. That is, the temporal profits of arbitrage strategies temporally increased by excessive trading of overconfident arbitrageurs are subsequently reversed. The poor performance that hedge fund managers suffer comes from the reversal of the selected hedge portfolios, the selection of which is affected by upward bias in temporal profits.
목차
1. Introduction
2. The Effects of Overconfidence, Ambiguity, and Self-Attribution Bias on Arbitrage Trading Strategies
2.1 Hedge Portfolio Return Process
2.2 Payoffs and Signals
2.3 Posterior Mean and Variance of Payoff
2.4 Implications of Over-confidence, Self-attribution Bias, and Ambiguity for the Posterior Mean of Payoff
2.5 The Effects of Behavioral Biases on Temporal Profits
3. Estimation of Alpha and Idiosyncratic Volatility Processes
3.1 Conditional CAPM Model
3.2 Estimation Method
4. Hedge Portfolios
4.1 Data and the Universe
4.2 Construction of Hedge Portfolios
4.3 Dynamics of time-varying parameters
5. Overconfidence and Ambiguity Aversion
5.1. Measures of Overconfidence
5.2 Overprecision, Overestimation, and Self-attribution Bias
5.3 Overconfidence and Volatility
5.4 Reversals Subsequent to Overreaction
5.5 Ambiguity Aversion
6 Excess Arbitrage and Performance of Hedge portfolios
6.1 Out-of-sample Forecasting
6.2 Has Alpha Been Eroded Away?
6.3 Excess Arbitrage Trading in the 2000s
7 Conclusions
Appendix
References
Table
Figure