Topic: Leveraging Overconfidence
Speaker: Brad M. Barber,Graduate School of Management, UC Davis
Time: Friday, 15 November, 12:15-13:45
Location: Room K05, Guanghua Building 2
Organizers: Department of Finance, Center for Finance and Development, PKU
In theory, overconfident investors with a budget constraint use leverage more, trade more, and perform worse than well-calibrated investors. We confirm these predictions empirically by analyzing the overconfidence, trading, and performance of retail investors who use margin. Using survey data, we measure overconfidence as the difference between an investor’s self-assessment of knowledge and tested knowledge; margin investors have greater overconfidence than cash investors. Using broker data, we find margin investors trade more, speculate more, and have worse security selection ability than cash investors. A long-short portfolio that follows the trades of margin investors loses 35 bps per day.
Brad Barberis the Gallagher Professor of Finance at the Graduate School of Management, UC Davis.
Professor Barber has been recognized as one of the most widely cited financial economists in the world (ranking 38th in one citation survey). In 2019, he was selected as a Fellow of the Financial Management Association (FMA), which “…recognizes individuals who have made significant contributions to the profession.” He was also elected as FMA President and served in 2018. He currently serves on the advisory boards of the Academic Female Finance Finance Committee (AFFECT) and the Principles of Responsible Investment (PRI). He was a Principal Investigator for the CalPERS Sustainable Research Initiative (SIRI, 2012-2016) and the finance department editor for Management Science (2009-2012). He is the founder of the Napa Finance Conference.
Professor Barber's research focuses on asset pricing, behavioral finance, and private equity. He has written numerous scholarly articles, which have appeared in top academic publications including the Journal of Finance, Journal of Financial Economics, Review of Financial Studies, Journal of Political Economy, Quarterly Journal of Economics, American Sociological Review, Journal of Financial and Quantitative Analysis, and the Financial Analyst Journal. His research has been covered extensively in the financial press, including Business Week, Time, The Wall Street Journal, ABC News, NBC Nightly News, CNN, CNNfn, and CNBC.
Professor Barber received his Ph.D. in finance from the University of Chicago in 1991. He received an MBA from the University of Chicago and a B.S. in Economics from the University of Illinois.
Your participation is warmly welcomed!