Beta momentum strategy after extreme market movements

This study examines the association between tax aggressiveness and overconfidence in 277 Brazilian stock market listed companies from 2010 to 2017, with the supposition (based on optimal capital ownership structure theory) that the greater a manager’s overconfidence, the more aggressive the company’s tax decisions. Overconfidence is measured in an innovative way in which normalizing excess acquisitions and excess investments using the company’s market value and then combining these two variables with indebtedness to capture, more directly, the possible effects of overconfidence on the corporation’s operations. Tax aggressiveness is computed using a tax burden on earnings and value-added. The variables included in the model were obtained from data contained in the selected companies’ financial statements. Data analysis was performed by multiple linear regression. The parameters used combined and fixed effects methods to identify an association between tax aggressiveness and overconfidence. Data related to corporate governance, CEO’s characteristics, and capital concentration were used as control variables. The study’s main finding does not show any significant relationship between fiscal aggressiveness and overconfidence; however, they did show a significant association with tax aggressiveness, the company’s size, the return on shares, and the education level of the CEO. An interesting finding of the robustness tests is the stationarity of tax aggressiveness, which could partially explain the non-significance of the main finding.

This investigation studies the impact of mutual fund herding on the returns achieved by contrarian strategy from 1990 to 2015 in the Chinese stock market. The relationship between the profit gained by the contrarian strategy and the macroeconomic environment is also examined. First, the returns of the contrarian strategy in China’s stock market are found to be significant. Second, most loser stocks with a high degree of mutual fund herding outperform loser stocks with a low degree of mutual fund herding, revealing that the profitability of an investment portfolio depends on the degree of mutual fund herding. Third, investors should buy loser stocks with a high degree of herding and sell winner stocks with a low degree of herding during a two-year formation period, over which zero-cost contrarian strategies yield the significantly highest return. Finally, the payoff of contrarian strategies is positively related to the herding effect and negatively related to macroeconomic variables.

Cognitive biases often influence investor behavior in developing capital markets, leading to market anomalies and affecting overall market efficiency. With the increasing integration of global financial markets and the growing participation of retail investors, understanding these biases is more critical than ever. While market anomalies have been extensively studied in developed markets, their influence in developing economies remains under-explored. This study aims to examine the impact of heuristic biases on investment decisions, focusing on Nepal’s stock market. Structural Equation Modeling is used to assess how perceived market efficiency mediates the relationship between heuristic biases and investor behavior. Data were collected from purposively selected 403 active individual investors in Nepal Stock Exchange (NEPSE). The findings reveal that representative and overconfidence biases significantly and positively influence investment decisions and market efficiency. Specifically, investors exhibiting these biases are more likely to make confident and bold investment choices, believing in their ability to predict market movements accurately. Furthermore, the study finds that perceived market efficiency mediates the relationship between anchoring and adjustment bias and investment decisions, suggesting that investors who rely heavily on initial information (anchors) adjust their decisions based on their perceptions of market efficiency. The results highlight the critical role of heuristic biases in shaping investor behavior and stress the importance of market efficiency in this process. The study emphasizes the need to enhance investor awareness of these biases and implement policies to improve market transparency and efficiency. Such measures are vital for mitigating risks and fostering a more robust and resilient financial market in developing economies like Nepal.