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What Influences the Asymmetry of Investors’ Underreaction and Overreaction?
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TitleWhat Influences the Asymmetry of Investors’ Underreaction and Overreaction?  
AuthorLi Xuefeng,Yuan Shuai and Tang Qiao  
OrganizationNankai University;; 
Key WordsBSV model; asymmetry; underreaction; overreaction; investor sentiment 
AbstractThe BSV model has been widely applied to study the effect of cognitive biases on investors’ underreaction and overreaction behaviors. However, there have been two contradictories found conflicting with the conclusions of the BSV model: One is the asymmetry of investors’ cognitive bias of winner and loser portfolios, and the other is the emergence of the short-term overreaction behaviors. This paper includes the sentiment factor in the BSV framework to illuminate the effect of individual investor sentiment. The improved BSV model found the following conclusions: First, the asymmetric reactions to the positive and negative earnings of a listed company are caused by individual investor sentiment. Second, the stronger the degree of the asymmetry of the sentiment factor, the faster underreaction behaviors converts to overreaction behaviors. Furthermore, in the short term, the return of pessimistic investors is lower than that of the optimistic investors, but in the long run, the return of pessimistic investors is greater than that of the optimistic investors. 
Serial NumberWP1409 
  • Institute of Economics, Chinese Academy of Social Sciences
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