David Hirshleifer | |
---|---|
Born | |
Nationality | American |
Academic career | |
Field | Financial economics Behavioral economics |
Institution | USC Marshall School of Business |
Alma mater | University of Chicago University of California, Los Angeles |
Contributions | information cascades theory; theory of investor under- and over-reactions |
Awards | Smith Breeden Award, 1999 for outstanding paper in the Journal of Finance |
Information at IDEAS / RePEc |
David Hirshleifer is an American economist who is currently the David G. Kirby Professor of Behavior Economics at the University of Southern California Marshall School of Business. [1] From 2006-2021 he was a Distinguished Professor of Finance and Economics at the University of California, Irvine, where he also held the Merage Chair in Business Growth. [2] From 2018 to 2019, he served as President of the American Finance Association, [2] and is an associate at the NBER. [3] Previously, he was a professor at UCLA, the University of Michigan, and Ohio State University. His research is mostly related to behavioral finance and informational cascades. In 2007, he was listed as one of the 100 most-cited economists in the world by Web of Science. [4] On Google Scholar, he has more than 60,000 citations. [5]
David’s father, Jack Hirshleifer, was an economics professor at UCLA from 1960 to 2001. He is married to Siew Hong Teoh, a chaired professor of accounting at the University of California at Los Angeles. He was an editor of the Journal of Finance from 2003 to 2011. He was also an editor of the Review of Financial Studies from 2001 to 2007, and an executive editor of the RFS from 2011 to 2014. From 2020-2021, he was a co-editor of the Journal of Financial Economics .
He was educated at UCLA, where he received a BA in mathematics in 1980, and at the University of Chicago, where he received an MA in economics in 1983, and a PhD in economics in 1985. [2]
Hirshleifer's research areas include the modeling of social influence, theoretical and empirical asset pricing, and corporate finance. He is the originator of the theory of information cascades, and has modeled investor psychology and its effects on security market under- and over-reactions. His scholarly work on cascades has also received attention from popular economics, with references in both mainstream business and economics media. [6] [7] He is a contributor to the fields of behavioral economics and behavioral finance.
Much of his work on investor psychology has focused on the effects of biased self-attribution, overconfidence, and limited attention. He and his co-authors were awarded the 1999 Smith Breeden Award for research showing how investor overconfidence, in combination with biased self-attribution, can explain the short-run momentum (finance) and long-run reversal patterns found the returns of many stock markets. [8] More recent work has shown how investor overconfidence may also help explain the forward premium puzzle in foreign exchange markets . [9] In his work on limited attention, he has shown that both distracting events [10] and lack of attention to relevant information [11] can help explain important accounting anomalies such as post earnings announcement drift
Hirshleifer's research has taken several approaches to show that stock returns are not exclusively based on relevant financial information, but also incorporate factors such as investors' mood and superstitions. His paper "Good Day Sunshine: Stock Returns and the Weather," found abnormally high returns in the New York Stock Exchange composite on days that it was abnormally sunny in the New York city area. [12] [13] His research on the Chinese initial public offering market has provided evidence that Chinese companies which contain listing code numbers considered lucky in Chinese culture are initially priced much higher than financially similar Chinese firms debuting with unlucky numbers in their listing codes. [14]
In addition to investor psychology, Hirshleifer also examines behavior of different parties in financial market. His work with Usman Ali developed a method to identify insider tradings for a firm, which can be used to predict this firm's opportunistic behavior such as earnings management, restatements, SEC enforcement actions, shareholder litigation, and executive compensation. [15] This paper is later reported by Justin Lahart on Wall Street Journal. [16] His research, "Psychological Bias as a Driver of Financial Regulations", argued that regulator psychology plays an important role in financial markets. [17] This research has garnered attention as the 2007 financial crisis has led to greater a scrutiny about the process of setting financial regulation. [18]
Together with his father, Jack Hirshleifer, and the economist Amihai Glazer, Hirshleifer is the coauthor of the microeconomics textbook Price Theory and Applications: Decisions, Information, and Markets .
In finance, the capital asset pricing model (CAPM) is a model used to determine a theoretically appropriate required rate of return of an asset, to make decisions about adding assets to a well-diversified portfolio.
The efficient-market hypothesis (EMH) is a hypothesis in financial economics that states that asset prices reflect all available information. A direct implication is that it is impossible to "beat the market" consistently on a risk-adjusted basis since market prices should only react to new information.
Behavioral economics is the study of the psychological, cognitive, emotional, cultural and social factors involved in the decisions of individuals or institutions, and how these decisions deviate from those implied by classical economic theory.
Eugene Francis "Gene" Fama is an American economist, best known for his empirical work on portfolio theory, asset pricing, and the efficient-market hypothesis.
In corporate finance, capital structure refers to the mix of various forms of external funds, known as capital, used to finance a business. It consists of shareholders' equity, debt, and preferred stock, and is detailed in the company's balance sheet. The larger the debt component is in relation to the other sources of capital, the greater financial leverage the firm is said to have. Too much debt can increase the risk of the company and reduce its financial flexibility, which at some point creates concern among investors and results in a greater cost of capital. Company management is responsible for establishing a capital structure for the corporation that makes optimal use of financial leverage and holds the cost of capital as low as possible.
Value investing is an investment paradigm that involves buying securities that appear underpriced by some form of fundamental analysis. Modern value investing derives from the investment philosophy taught by Benjamin Graham and David Dodd at Columbia Business School starting in 1928 and subsequently developed in their 1934 text Security Analysis.
A market anomaly in a financial market is predictability that seems to be inconsistent with theories of asset prices. Standard theories include the capital asset pricing model and the Fama-French Three Factor Model, but a lack of agreement among academics about the proper theory leads many to refer to anomalies without a reference to a benchmark theory. Indeed, many academics simply refer to anomalies as "return predictors", avoiding the problem of defining a benchmark theory.
Market sentiment, also known as investor attention, is the general prevailing attitude of investors as to anticipated price development in a market. This attitude is the accumulation of a variety of fundamental and technical factors, including price history, economic reports, seasonal factors, and national and world events. If investors expect upward price movement in the stock market, the sentiment is said to be bullish. On the contrary, if the market sentiment is bearish, most investors expect downward price movement. Market participants who maintain a static sentiment, regardless of market conditions, are described as permabulls and permabears respectively. Market sentiment is usually considered as a contrarian indicator: what most people expect is a good thing to bet against. Market sentiment is used because it is believed to be a good predictor of market moves, especially when it is more extreme. Very bearish sentiment is usually followed by the market going up more than normal, and vice versa. A bull market refers to a sustained period of either realized or expected price rises, whereas a bear market is used to describe when an index or stock has fallen 20% or more from a recent high for a sustained length of time.
Momentum investing is a system of buying stocks or other securities that have had high returns over the past three to twelve months, and selling those that have had poor returns over the same period.
The overconfidence effect is a well-established bias in which a person's subjective confidence in their judgments is reliably greater than the objective accuracy of those judgments, especially when confidence is relatively high. Overconfidence is one example of a miscalibration of subjective probabilities. Throughout the research literature, overconfidence has been defined in three distinct ways: (1) overestimation of one's actual performance; (2) overplacement of one's performance relative to others; and (3) overprecision in expressing unwarranted certainty in the accuracy of one's beliefs.
The goals of experimental finance are to understand human and market behavior in settings relevant to finance. Experiments are synthetic economic environments created by researchers specifically to answer research questions. This might involve, for example, establishing different market settings and environments to observe experimentally and analyze agents' behavior and the resulting characteristics of trading flows, information diffusion and aggregation, price setting mechanism and returns processes.
Cultural economics is the branch of economics that studies the relation of culture to economic outcomes. Here, 'culture' is defined by shared beliefs and preferences of respective groups. Programmatic issues include whether and how much culture matters as to economic outcomes and what its relation is to institutions. As a growing field in behavioral economics, the role of culture in economic behavior is increasingly being demonstrated to cause significant differentials in decision-making and the management and valuation of assets.
The adaptive market hypothesis, as proposed by Andrew Lo, is an attempt to reconcile economic theories based on the efficient market hypothesis with behavioral economics, by applying the principles of evolution to financial interactions: competition, adaptation, and natural selection. This view is part of a larger school of thought known as Evolutionary Economics.
In finance, momentum is the empirically observed tendency for rising asset prices or securities return to rise further, and falling prices to keep falling. For instance, it was shown that stocks with strong past performance continue to outperform stocks with poor past performance in the next period with an average excess return of about 1% per month. Momentum signals have been used by financial analysts in their buy and sell recommendations.
Herd behavior is the behavior of individuals in a group acting collectively without centralized direction. Herd behavior occurs in animals in herds, packs, bird flocks, fish schools and so on, as well as in humans. Voting, demonstrations, riots, general strikes, sporting events, religious gatherings, everyday decision-making, judgement and opinion-forming, are all forms of human-based herd behavior.
Avanidhar Subrahmanyam is a professor and named chair at the University of California Los Angeles. He is an expert in stock market activity and behavioral finance, and has published a number of papers on financial markets.
Factor investing is an investment approach that involves targeting quantifiable firm characteristics or “factors” that can explain differences in stock returns. Security characteristics that may be included in a factor-based approach include size, low-volatility, value, momentum, asset growth, profitability, leverage, term and carry.
Siew Hong Teoh is the Lee and Seymour Graff Endowed Professor of accounting at UCLA Anderson School of Management. She is on the editorial board of the Accounting Review and the Review of Accounting Studies.
Paul A. Griffin is an accountant, academic, and author. He is Distinguished Professor Emeritus at the Graduate School of Management, University of California, Davis.
Lin Peng holds the Krell Chair in Finance at the City University of New York. She is known for her work on behavioral economics.