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Do culture, sentiment, and cognitive dissonance explain the ‘above suspicion’ anomalies?
Author(s) -
Altanlar Ali,
Guo Jiaqi,
Holmes Phil
Publication year - 2019
Publication title -
european financial management
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.311
H-Index - 64
eISSN - 1468-036X
pISSN - 1354-7798
DOI - 10.1111/eufm.12203
Subject(s) - cognitive dissonance , cognition , psychology , earnings , focus (optics) , cognitive psychology , social psychology , economics , physics , accounting , neuroscience , optics
We investigate how cognitive dissonance arising from interactions between sentiment and culture affects momentum and post‐earnings‐announcement‐drift (PEAD). We focus on differing views relating to change between western and East Asian cultures. Building on Hong and Stein's heterogeneous trader model and recognizing westerners’ (easterners’) belief in continuation (reversal), we propose cognitive dissonance arises in different circumstances and to differing degrees in the two cultures, resulting in it being a key driver of the anomalies. Results support our hypotheses, suggesting sentiment and culture interact to impact cognitive dissonance, explaining differences in the anomalies across countries evident in prior literature.