David Hirshleifer

Last updated
David Hirshleifer
Born
California
NationalityAmerican
Academic career
Institution University of California, Irvine
Paul Merage School of Business
Field Financial economics
Behavioral economics
Alma mater University of Chicago
University of California, Los Angeles
Contributionsinformation 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 a Distinguished Professor of Finance and Economics at the University of California, Irvine, where he also holds the Merage Chair in Business Growth. [1] From 2018 to 2019, he served as President of the American Finance Association, [1] and is an associate at the NBER. [2] 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. [3]

Contents

Background

David’s father, Jack Hirshleifer, was an economics professor at UCLA from 1960 to 2001. He is married to Siew Hong Teoh, Dean's Professor of Accounting at the University of California at Irvine. 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.

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. [1]

Research

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. [4] [5] 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. [6] More recent work has shown how investor overconfidence may also help explain the forward premium puzzle in foreign exchange markets . [7] In his work on limited attention, he has shown that both distracting events [8] and lack of attention to relevant information [9] 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. [10] [11] 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. [12]

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. [13] This paper is later reported by Justin Lahart on Wall Street Journal. [14] His research, "Psychological Bias as a Driver of Financial Regulations", argued that regulator psychology plays an important role in financial markets. [15] This research has garnered attention as the 2007 financial crisis has led to greater a scrutiny about the process of setting financial regulation. [16]

Books

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 .

Selected publications

Related Research Articles

A stock market bubble is a type of economic bubble taking place in stock markets when market participants drive stock prices above their value in relation to some system of stock valuation.

<span class="mw-page-title-main">Capital asset pricing model</span> Model used in finance

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.

<span class="mw-page-title-main">Efficient-market hypothesis</span> Economic theory that asset prices fully reflect all available information

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.

<span class="mw-page-title-main">Behavioral economics</span> Academic discipline

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<span class="mw-page-title-main">Eugene Fama</span> American economist and Nobel laureate in Economics

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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.

<span class="mw-page-title-main">Value investing</span> Investment paradigm

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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.

<span class="mw-page-title-main">Market sentiment</span> General attitude of investors to market price development

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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.

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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.

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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.

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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.

References

  1. 1 2 3 https://merage.uci.edu/_files/documents/faculty-profiles/cv-david-hirshleifer-3-8-2021-v1.pdf
  2. ↑ "Biography | David Hirshleifer" . Retrieved 2023-12-10.
  3. ↑ "Most-Cited Scientists in Economics & Business". Archived from the original on 2015-09-24.
  4. ↑ "Real leaders do not swim with the shoal," Michael Skapinker, October 5, 2009
  5. ↑ "How the Low-Fat, Low-Fact Cascade Just Keeps Rolling Along," John Tierney, www.nytimes.com, October 9, 2007
  6. ↑ Daniel, K.; Hirshleifer, D.; Subrahmanyam, A. (1998). "Investor Psychology and Security Market Under- and Overreactions". Journal of Finance. 53 (6): 1839–1885. doi:10.1111/0022-1082.00077. hdl: 2027.42/73431 . S2CID   32589687.
  7. ↑ “Investor Overconfidence and the Forward Premium Puzzle,” Craig Burnside, Bing Han, David Hirshleifer and Tracy Yue Wang, forthcoming, Review of Economic Studies
  8. ↑ “Driven to Distraction: Extraneous Events and Underreaction to Earnings News,” David Hirshleifer, Sonya Lim, and Siew Hong Teoh, Journal of Finance, 63(5), October (2009):2287-2323 Hirshleifer, D.; Lim, S. S.; Teoh, S. H. (2009). "Driven to Distraction: Extraneous Events and Underreaction to Earnings News". The Journal of Finance. 64 (5): 2289. CiteSeerX   10.1.1.712.8563 . doi:10.1111/j.1540-6261.2009.01501.x.
  9. ↑ “Limited Attention, Information Disclosure, and Financial Reporting, David Hirshleifer and Siew Hong Teoh, Journal of Accounting and Economics, 36(1–3), December, (2003), 337–386.Hirshleifer, D.; Teoh, S. H. (2003). "Limited attention, information disclosure, and financial reporting". Journal of Accounting and Economics. 36 (1–3): 337–386. CiteSeerX   10.1.1.459.8737 . doi:10.1016/j.jacceco.2003.10.002.
  10. ↑ "Good Day Sunshine: Stock Returns and the Weather," David Hirshleifer and Tyler Shumway, Journal of Finance, 58(3), June, (2003):1009–1032. www.jstor.org/stable/3094570
  11. ↑ This work is also referenced in the Forbes Magazine article "Blinded by the Light: Sunshine and stocks," by Brett Nelson, July 21, 2003
  12. ↑ "Nanyang Business School media coverage" (PDF). Archived from the original (PDF) on 2011-10-07. Retrieved 2011-02-28.
  13. ↑ Ali, Usman; Hirshleifer, David (2017). "Opportunism as a Managerial Trait: Predicting Insider Trading Profits and Misconduct" (PDF). Journal of Financial Economics. 126 (3): 490–515. doi:10.1016/j.jfineco.2017.09.002.
  14. ↑ Lahart, Justin (2015). "Investors Should Beware When Good Managers Make Great Traders". Wall Street Journal.
  15. ↑ “Psychological Bias as a Driver of Financial Regulation,” European Financial Management, November 2008, 14(5) pp. 856–874. Hirshleifer, David (2008). "Psychological Bias as a Driver of Financial Regulation". European Financial Management. 14 (5): 856–874. CiteSeerX   10.1.1.589.7318 . doi:10.1111/j.1468-036X.2007.00437.x. S2CID   11145290.
  16. ↑ "Does Financial Regulation Protect Investors?" John Nofsinger, September 5, 2008, www.psychologytoday.com
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