Volume 5, Number 3, 2004 Abstracts
© Copyright Erlbaum 2004

Rumors and the Financial Marketplace
Allan J. Kimmel-ESCP-EAP, European Schoolof Management, Paris

In the contemporary financial marketplace, the consequences of speculation and decision making based on unfounded assertions and false rumors can be especially potent and undeniably dangerous. With the emergence of the Internet and other new communication technologies that facilitate the spread of misinformation, it has become essential for managers, investors, and other stakeholders to acquire a better understanding of the forces that give rise to rumors and the most effective strategies for dealing with them. This paper describes how the uncertainties and anxieties generated by ambiguous situations, coupled with a strong desire for information, can frequently lead to the generation and spreading of rumors in business environments. Although relatively little research attention has been paid to the particularities of financial rumors, the author identifies some key characteristics that appear to distinguish financial rumors from rumors about other aspects of business operations, such as greater conciseness, a shorter life cycle, and the potential for significant economic consequences. The paper concludes with a set of recommendations for future research and for actions that can be taken to minimize the potentially harmful effects of financial rumors.

Projection Bias and Financial Risk Tolerance
John Grable-Department of Family Studies and Human Services at Kansas State University
Ruth Lytton-Department of Apparel, Housing and Resource Management at Virginia Tech University
Barbara O'Neill-Rutgers Cooperative Extension

Behavioral finance theories explain "why" individuals exhibit behaviors that do not maximize expected utility. This study explores how projection bias, as explained by regret theory, may shape financial risk tolerance attitudes. The results suggest that gender, income, and stock market price changes, as measured by the NASDAQ, the Dow Jones Industrial Average, and the Standard & Poor's 500 indexes, help explain risk attitudes. Risk tolerance appears to be an elastic and changeable attitude. This research expands on the work of Shefrin [2000], who reported that recent stock market price changes exert a strong influence on risk tolerance attitudes and behaviors.

Worse Than Chance? Performance and Confidence Among Professionals and Laypeople in the Stock Market
Gustaf Torngren-Stockholm University
Henry Montgomery-Stockholm University

In two studies, stock market professionals (N1 = 22, N2 = 21) and laypeople (N1 = 29, N2 = 34) provided thirty-day forecasts for twenty stocks and estimated the size of their own errors as well as their own and the other group's mean errors. Both groups predicted that the errors made by professionals would be half the size of the errors made by laypeople. In reality, the errors of both groups were about the size predicted for the laypeople. Participants also estimated their ability to pick the best performing stock from two options. Both groups proved to be overconfident. Professional predictions were only successful 40% of the time, a performance below what could be expected from chance alone. Self reports and correlations between forecasts and price movements suggested that the professionals based their predictions on specific information of the stocks without sufficient awareness of the unreliability of this information, while the laypeople used simple heuristics based on previous price movements.

Bubblelepsy: The Behavioral Wellspring of the Internet Stock Phenomenon
Aaron Bitmead-Department of Accounting and Finance at the University of Western Australia
Robert B. Durand-Department of Accounting and Finance at the University of Western Australia
Hock Guan Ng-Department of Economics at the University of Maryland Baltimore County

This paper studies daily returns of Internet stocks before and after the Internet Crash of March 27, 2000. We find evidence of a bubble before the Crash. We argue that this bubble was propelled by overconfident investors suffering from biased self-attribution. Our analysis of subgroups of Internet firms finds the stocks that were perhaps the most salient in investors' minds drove the death spiral of Internet stocks and, although the evidence is at best marginal, the entire U.S. market.

Attitudes and Trading Behavior of Stock Market Investors: A Segmentation Approach
Ryan Wood-Bayer HealthCare
Judith Lynne Zaichkowsky-H. E. C., Paris

This study identifies and characterizes segments of individual investors based on their shared investing attitudes and behavior. A behavioral finance literature review reveals five main constructs that drive investor behavior: investment horizon, confidence, control, risk attitude, and personalization of loss. Ninety individual investors were surveyed via questionnaire on these constructs. A cluster segmentation analysis identified four main segments of individual investors: 1) risk-intolerant traders; 2) confident traders; 3) loss-averse young traders; and 4) conservative long-term investors. Each segment purchased different types of stocks, used different information sources, and had different levels of trading behavior.

Research Elsewhere
Robert A. Olsen-California State University, Chico and Decision Research in Eugene, Oregon

Book Reviews
Robert A. Olsen-California State University, Chico and Decision Research in Eugene, Oregon