CEO Overconfidence in Mergers & Acquisitions – Literature Review

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“Many managements apparently were overexposed in impressionable childhood years to the story in which the imprisoned handsome prince is released from a toad’s body by a kiss from a beautiful princess. Consequently, they are certain their managerial kiss will do wonders for the profitability of Company T[arget]…We’ve observed many kisses but very few miracles. Nevertheless, … Continue reading CEO Overconfidence in Mergers & Acquisitions – Literature Review

The Disposition to Sell Winners Too Early and Ride Losers Too Long

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In this paper, Shefrin and Statman argue that investors tend to sell winners too early and ride losers for too long. They call this the disposition effect. The theory is based on the following concepts. Prospect theory: We are risk-averse in terms of gains and risk-seeking in terms of losses. Mental accounting: We treat each … Continue reading The Disposition to Sell Winners Too Early and Ride Losers Too Long

Does the Stock Market Overreact? by Bondt and Thaler

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Main hypotheses of paper Extreme movements in stock prices will be followed by subsequent price movements in the opposite direction. The more extreme the initial price movement, the greater will be the subsequent adjustment. In other words, the paper try to test whether the overreaction hypothesis is predicative.The two hypotheses propose a violation of weak-form … Continue reading Does the Stock Market Overreact? by Bondt and Thaler