Part of the SpringerBriefs in Finance book series (BRIEFSFINANCE)


Empirical literature suggests that conservatism bias causes only asset price underreaction to new information and representativeness heuristic causes only asset price overreaction to new information. This book formally examines the role of conservatism bias and representativeness heuristic in determining asset price overreaction or underreaction to new information. Specifically, the models in Chap.  2 5 of this book prove theoretically that either conservatism bias or representativeness heuristic is capable of generating both asset price overreaction and underreaction to new information. These results hold in a competitive securities market with noise traders or a security market with imperfect competition allowing strategic interaction among traders. Although the results in Chap.  2 5 are purely theoretical, they shed some light on the cause of the asset price overreaction and underreaction to new information. The model in Chap.  6 attempts to build a realistic model to explain the cause of the asset price underreaction or overreaction to new information by using both conservatism bias and representativeness heuristic.


Conservative Bias Underreaction Heuristic Causes Noise Traders Asset Pricing 
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Copyright information

© The Author(s) 2014

Authors and Affiliations

  1. 1.DeGroote School of BusinessMcMaster UniversityHamiltonCanada

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