Details
| Original language | English |
|---|---|
| Article number | 100836 |
| Journal | Journal of Behavioral and Experimental Finance |
| Volume | 39 |
| Early online date | 28 Aug 2023 |
| Publication status | Published - Sept 2023 |
Abstract
There are substantial differences in the return premia due to probability distortions in individualist and collectivist cultures. Consistent with the substantially lesser degree of probabilistic thinking in collectivist cultures documented by the psychology literature, probability-distortion-related return premia are substantially higher there than in individualist cultures. Our methodology applies a novel composite probability distortion (CPD) score based on cumulative prospect theory and salience theory. This measure is priced among all size groups in the cross-section of international stock returns: low-CPD-score stocks are underpriced while those with high scores appear overpriced. Collectivism is the main driver of differences in the CPD premium across countries and U.S. states.
Keywords
- Collectivism, Cumulative prospect theory, International stock returns, Probability distortions, Salience theory
ASJC Scopus subject areas
- Economics, Econometrics and Finance(all)
- Finance
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In: Journal of Behavioral and Experimental Finance, Vol. 39, 100836, 09.2023.
Research output: Contribution to journal › Article › Research › peer review
}
TY - JOUR
T1 - Probability distortions, collectivism, and international stock prices
AU - Hollstein, Fabian
AU - Sejdiu, Vulnet
N1 - Funding Information: We thank Elena Asparouhova (the editor), an anonymous associate editor, and two anonymous referees for helpful comments and suggestions. F. Hollstein gratefully acknowledges funding by the Deutsche Forschungsgemeinschaft (DFG) - project number 433352673 .
PY - 2023/9
Y1 - 2023/9
N2 - There are substantial differences in the return premia due to probability distortions in individualist and collectivist cultures. Consistent with the substantially lesser degree of probabilistic thinking in collectivist cultures documented by the psychology literature, probability-distortion-related return premia are substantially higher there than in individualist cultures. Our methodology applies a novel composite probability distortion (CPD) score based on cumulative prospect theory and salience theory. This measure is priced among all size groups in the cross-section of international stock returns: low-CPD-score stocks are underpriced while those with high scores appear overpriced. Collectivism is the main driver of differences in the CPD premium across countries and U.S. states.
AB - There are substantial differences in the return premia due to probability distortions in individualist and collectivist cultures. Consistent with the substantially lesser degree of probabilistic thinking in collectivist cultures documented by the psychology literature, probability-distortion-related return premia are substantially higher there than in individualist cultures. Our methodology applies a novel composite probability distortion (CPD) score based on cumulative prospect theory and salience theory. This measure is priced among all size groups in the cross-section of international stock returns: low-CPD-score stocks are underpriced while those with high scores appear overpriced. Collectivism is the main driver of differences in the CPD premium across countries and U.S. states.
KW - Collectivism
KW - Cumulative prospect theory
KW - International stock returns
KW - Probability distortions
KW - Salience theory
UR - http://www.scopus.com/inward/record.url?scp=85168816043&partnerID=8YFLogxK
U2 - 10.1016/j.jbef.2023.100836
DO - 10.1016/j.jbef.2023.100836
M3 - Article
AN - SCOPUS:85168816043
VL - 39
JO - Journal of Behavioral and Experimental Finance
JF - Journal of Behavioral and Experimental Finance
SN - 2214-6350
M1 - 100836
ER -