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How Much Does Expertise Reduce Behavioral Biases? The Case of Anchoring Effects in Stock Return Estimates
Author(s) -
Kaustia Markku,
Alho Eeva,
Puttonen Vesa
Publication year - 2008
Publication title -
financial management
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.647
H-Index - 68
eISSN - 1755-053X
pISSN - 0046-3892
DOI - 10.1111/j.1755-053x.2008.00018.x
Subject(s) - anchoring , stock (firearms) , behavioral economics , stock market , economics , value (mathematics) , sample (material) , psychology , econometrics , actuarial science , business , financial economics , social psychology , microeconomics , statistics , mathematics , engineering , mechanical engineering , paleontology , chemistry , horse , chromatography , biology
We use data from surveys involving 300 Scandinavian financial market professionals and 213 university students to conduct three controlled experiments in which we manipulate the background information given to subjects. We find a very large anchoring effect in the students' long‐term stock return expectations, that is, their estimates are influenced by an initial starting value. Professionals show a much smaller anchoring effect, but it nevertheless remains statistically and economically significant, even when we restrict the sample to more experienced professionals. We also find that the professionals are not conscious of the impact of historical returns on their expectations.