Cognitive biases in investors' behaviour under stress: Evidence from the London Stock Exchange |
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| Affiliation: | 1. Department of Business Administration, University of Patras, 26504 Rio, Greece;2. Department of Finance, ESSCA School of Management, 55 Quai Alphonse Le Gallo, Boulogne, 92513 Paris, France;3. Zayed University, College of Business, P.O. Box 144534, Abu Dhabi, United Arab Emirates;1. University of Trier, Department IV, Trier 54286, Germany;2. WHU – Otto Beisheim School of Management, Burgplatz 2, Vallendar, Germany;3. Department of Finance, Shih Hsin University, Taipei 11645, Taiwan |
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| Abstract: | The paper examines the implications arising from the effect of two cognitive biases, representativeness and conservatism, for securities price behaviour on the London Stock Exchange. In a single- and multi-factor framework of abnormal returns, the aspects of trend and consistency in the performance ratios of UK companies are examined on the base of behavioural finance theories with respect to cognitive biases. The findings obtained by the multi-factor model confirm the existence of two cognitive biases and trends that investors observe in financial performance over the long-term horizon, which is not the case for the single-factor model. |
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