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Sensation Seeking, Overconfidence, and Trading Activity
Mark Grinblatt and Matti Keloharju
This study analyzes the role that two psychological attributes-sensation seeking and overconfidence-play in the tendency of investors to trade stocks. Equity trading data are combined with data from an investor's tax filings, driving record, and psychological profile. We use the data to construct measures of overconfidence and sensation seeking tendencies. Controlling for a host of variables, including wealth, income, age, number of stocks owned, marital status, and occupation, we find that overconfident investors and those investors most prone to sensation seeking trade more frequently. >>READ PAPER (PDF)
Dollar Cost Averaging
Michael Brennan, Feifei Li and Walter Torous
Dollar Cost Averaging is a strategy for purchasing equity securities that is widely recommended by professional investment advisors and commentators, but which has been virtually ignored by academic theorists and textbook writers. In this paper we explore whether the strategy is but another instance of irrational behavior by individual investors, or whether it is an investment heuristic that has survival value in an environment in which security prices exhibit mean reversion behavior that has only belatedly been recognized by academic theorists. Our evidence supports the view that the individual investors who follow this strategy in purchasing individual stocks to add to an existing portfolio are better off than if they followed the ‘rational'
strategies traditionally recommended by academics." >>READ PAPER (PDF)
Growth Options, Beta and the Cost of Capital
Antonio Bernardo, Bhagwan Chowdhry and Amit Goyal
We show how to decompose a firm's beta into its beta of assets-in-place and its beta of growth opportunities. Our empirical results demonstrate that the beta of growth opportunities is greater than the beta of assets-in-place for virtually all industries over all periods of time dating back to 1977. The difference has important implications for determining the cost of capital. For example, when choosing comparables to determine project beta one should match the growth opportunities of the project with those of the comparable firm. Assuming a 6% market equity risk premium, accounting for growth opportunities alters the project cost of capital by as much as 2 to 3%. >>READ PAPER (PDF)
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Walt Torous, professor of finance at UCLA Anderson, has been awarded the Lee and Seymour Graff Professorship. Professor Torous teaches real estate finance and managerial finance in Anderson's regular MBA, Fully-Employed MBA, and Executive MBA programs. He is an editor of Real Estate Economics, the official publication of the American Real Estate and Urban Economics Association. He was also the founding director of the Ziman Center for Real Estate at UCLA Anderson.
The Exceptional Finance Research Award in honor of Professor Mark Grinblatt was established recently by former UCLA finance Ph.D. students as a display of gratitude for his extraordinary contributions to finance and for being a respected teacher. The award will offer supplementary research support to outstanding advance-year finance Ph.D. students. Funds will support conference travel, data acquisition, or other research-related activities.
A distinguished faculty member and the holder of the J. Clayburn LaForce Chair in Management, Professor Mark Grinblatt has published approximately 40 papers in finance and economic journals spanning all areas of financial economics. He is also the author of a widely respected finance textbook. He is a former President of the Western Finance Association, and is currently a Director of the American Finance Association and an associate editor of several journals.
UCLA Anderson Welcomes Four New Finance Faculty ...
Marc Martos-Vila is an acting assistant professor of finance. Marc studies corporate finance, mergers and acquisitions, executive compensation, and the effects of financial frictions. Other areas of interest include contract theory, search theory and the links between finance and aggregate economic activity. He is completing his Ph.D. at Princeton University.
Jan Schneider is an assistant professor of finance. He received his Ph.D. from the University of British Columbia. His research interest focuses on asset pricing theory, in particular on the interaction of heterogeneous investors in financial markets.
Geoff Tate is an assistant professor of finance. He has primary research interests in the areas of empirical corporate finance and behavioral finance. He completed his Ph.D. in 2003 at Harvard University. Professor Tate has published papers in leading academic journals including the Journal of Finance. He also served as an Assistant Professor at the Wharton School from 2003-2006 prior to joining the faculty at UCLA Anderson.
Liu Yang is an assistant professor of finance. Her research interests include theoretical and empirical corporate finance in the areas of mergers and acquisitions, corporate restructuring, corporate governance, and financial intermediation. Liu formerly worked as a Senior Financial Analyst in the structured finance group in Federal Home Loan Mortgage Corporation. She completed her Ph.D. at the University of Maryland.
B. Kipling (Kip) Hagopian, ('66), is the 2006 recipient of the John E. Anderson Distinguished Alumni Award. Hagopian joins a prestigious group of prior recipients that includes John E. Anderson, ('40), president and founder of Topa Equities Limited; Eugene Rosenfeld, ('56), sole proprietor of Forest Lane Group; Jeff Henley, ('67), chairman of the board at Oracle Corp.; and Ric Kayne ('68), chief executive officer of the investment management firm Kayne Anderson Capital Advisors, L.P. Management. >>MORE
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Hanno Lustig, UCLA
Darrell Duffie, Stanford
Brett Myers, UCLA (Ph.D. Student)
Brad Barber, UC-Davis
Yuzhao Zhang, UCLA (Ph.D. Student)
Christopher Malloy, LBS
Dirk Jenter, MIT
Jonathan Berk, UC-Berkeley