Limited Attention, Representativeness and Conservatism Biases: Evidence from the Taiwan Stock Market

• Main Authors: Chen-Hui Wu, 吳貞慧
• Other Authors: Victor W. Liu
• Format: Others
• Language: en_US
• Published: 2008
• Online Access: http://ndltd.ncl.edu.tw/handle/vu2hxd

博士 === 國立中山大學 === 企業管理學系研究所 === 96 === The key features of this dissertation pertain to limited investor attention and its indirect consequences of conservatism and representativeness biases that have impacts on the Taiwan Stock Market. Thus, this dissertation contributes to the empirical work on investors’ limited attention and heterogeneous beliefs to public information, as well as representativeness heuristics. This study examines the market reaction of a sequential release of annual reports in Taiwan, in which different stages of attention-grabbing cause different market reactions. Moreover, investors with limited attention have an incomplete understanding about the content of the annual report, in which different years present significant positive or negative reactions of trading volume, and the evidence supports the hypothesis of limited attention. If people focus primarily on the strength of the evidence, they tend to neglect its weight and manifest representativeness bias. On the other hand, when people are unimpressed by the strength of the evidence, they focus too much on its weight and exhibit conservatism bias. Thus, this study distinguishes the behavioral biases between global representativeness bias and local representativeness bias. The results suggest that accounting performances globally have low strength but high weight features, leading investors to show conservatism bias, and other valuation ratios globally have high strength but low weight features, leading investors to exhibit representativeness bias. However, when global sequence is further decomposed into a local sequence, those behavioral biases disappear. This study also sheds light on how investors are sensitive to the streak length of performance, and the empirical evidence indicates that investors exhibit the gambler’s fallacy to the trend of performance.