Gambler’s fallacy on the Chinese stock market = A szerencsejátékosok tévedésének vizsgálata a kínai részvénypiacon

Absztrakt (kivonat)

Gambler’s fallacy anomaly predicts that investors underreact to trends. An example of this fallacy is when playing coin toss, one incorrectly believes that head is more likely to occur than tail following a streak of tail draws. Similarly, investors might modify their expectations about next period’s earnings based on the previously observed unexpected earnings. Failing to avoid the gambler’s fallacy, an investor assumes that after seeing a streak of positive earnings surprises, a negative earnings surprise is more likely to come, and vice versa. For this reason if a streak is continued they underreact in the short-run. Underreaction to streaks is corrected in the post-announcement periods, resulting in higher returns. Using portfolio sorting and Fama-MacBeth regressions this study examines how the magnitude of this post-earnings announcement drift depends on past information. We find a more noticeable earnings drift if trends continue compared to when trends reverse. However, underreaction is also present after reversals, thus, gambler’s fallacy alone can not fully explain underreaction. This additional underreaction after the continuation of streaks relative to reversals is present among shorter positive streaks but disappears as streaks (irrespective of surprise sign) get longer. Our results suggest that investors await trends to reverse when seeing short positive streaks, but as streaks gets longer, they increase the likelihood that trends are more likely to continue.