Finance Seminar（2013-23）

Topic: Investor Overconfidence, Firm Value, and Corporate Decisions

Speaker: Xuemin (Sterling) Yan, University of Missouri

Time: Thursday, 5 December, 10:00-11:30

Location: Room 217, Guanghua Building 2

Abstract: Behavioral theory predicts that investor overconfidence causes overpricing because overconfident investors overestimate the precision of their information and underestimate risk. We test this prediction by using a measure of investor overconfidence derived from the characteristics and holdings of U.S. equity mutual fund managers. We find that firms with more overconfident investors are relatively overvalued based on M/B and two misvaluation measures. The impact of investor overconfidence on firm value is stronger among stocks with greater arbitrage risk. Furthermore, firms with more overconfident investors issue more equity and make more investments. Overall, our findings suggest that investor overconfidence has a significant impact on firm value and corporate decisions.