Public Information and Investor Overconfidence
How does public information increase investor overconfidence?
1Impact of Public Information
New public information increases capital flows. Conventional explanations suggest this is a rational response to reduced risk. However, investors may be overconfident in their ability to benefit from this information.
2Role of Overconfidence
Investors believe they can benefit more from public information than others. This 'better-than-average' mechanism increases capital flows.
3Horse Race Betting Example
In horse race betting markets, public performance summaries increase capital flows. This means more wealth transfer from bettors to tracks.
4Laboratory Experiment
A controlled lab experiment provides direct causal evidence of our proposed mechanism. The experiment shows how public information increases investor overconfidence.
5Implications for Regulation
Our findings are important for regulators seeking to understand the consequences of expanding public information available to individual investors.
6Conclusion and Importance
New public information increases capital flows due to investor overconfidence. This has significant implications for market dynamics and regulations.
Original article: Journal of Accounting Research — Yeni Kamu Bilgisi ve Yatırımcıların Aşırı Güveni