A Model of Investor Sentiment

Andrei Shleifer

in Inefficient Markets

Published in print March 2000 | ISBN: 9780198292272
Published online November 2003 | e-ISBN: 9780191596933 | DOI:

Series: Clarendon Lectures in Economics

A Model of Investor Sentiment

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Studies how investors form their beliefs. It begins with an overview of some of the empirical violations of market efficiency that recent models of investor sentiment try to address. It then presents an alternative model motivated by the idea that, in forecasting future earnings, investors interpret data on recent past earnings conservatively and using the representativeness heuristic. The simple model is consistent with both psychological evidence and the evidence from security price. At the end, some possible extensions are discussed.

Keywords: belief; conservatism; earnings; financial market; investor sentiments; market efficiency; psychology; representativeness heuristic; security price

Chapter.  15551 words.  Illustrated.

Subjects: Financial Markets

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