Superstition and financial decision making

Hirshleifer, David and Jian, Ming and Zhang, Huai (2014): Superstition and financial decision making.

Abstract

In Chinese culture, certain digits are lucky and others unlucky. We test how such numerological superstition affects financial decision in the China IPO market. We find that the frequency of lucky numerical stock listing codes exceeds what would be expected by chance. Also consistent with superstition effects, newly listed firms with lucky listing codes are initially traded at a premium after controlling for known determinants of valuation multiples, the lucky number premium dissipates within three years of the IPO, and lucky number firms experience inferior post-IPO abnormal returns.

• Item Type: MPRA Paper
• Language: English
• Keywords: Finance; Asset pricing; Investment
• Subjects: G - Financial Economics > G1 - General Financial Markets > G12 - Asset Pricing ; Trading Volume ; Bond Interest Rates; G - Financial Economics > G1 - General Financial Markets > G14 - Information and Market Efficiency ; Event Studies ; Insider Trading; G - Financial Economics > G1 - General Financial Markets > G15 - International Financial Markets

References

Agarwal, S, J. He, H. Liu, I. Png, T. Sing and W-K Wong (2014) Superstition and Asset Markets: Evidence from Singapore Housing. Working paper. Available at SSRN: http://ssrn.com/abstract=2416832 or http://dx.doi.org/10.2139/ssrn.2416832

Agarwal, S. and M. Bhashkar (2013) Cognitive Ability and Financial Decision Making, American Economic Journal: Applied Economics 5(1): 193-207

Agrawal, A., and K. Tandon (1994). Anomalies or illusions? Evidence from stock markets in eighteen countries. Journal of International Money and Finance 13, 83-106.

Aharony, J., J. Lee, and T. J. Wong (2000) Financial packaging of IPO firms in China. Journal of Accounting Research 38, 103-126.

Areddy, J. T. (2007) Chinese investors crunching numbers are glad to see 8s. The Wall Street Journal

Bai, C.-E., Q. Liu, J. Lu, F. M. Song, and J. Zhang (2004) Corporate governance and market valuation in China. Journal of Comparative Economics 32, 599-616.

Bai, C., J. Lu, and Z. Tao (2009) How does privatization work in China? Journal of Comparative Economics 37, 453.

Baker, M., and J. Wurgler (2004) A catering theory of dividends. Journal of Finance 59, 1125-1165.

Barberis, N., and M. Huang (2008) Stocks as lotteries: The implications of probability weighting for security prices. American Economic Review 98, 2066-2100.

Block, L., and T. Kramer (2009) The effect of superstitious beliefs on performance expectations. Journal of the Academy of Marketing Science 37, 161-169.

Burger, J. M., and A. L. Lynn (2005) Superstitious behavior among American and Japanese professional baseball players. Basic and Applied Social Psychology 27, 71-76.

Chamberlain, T. W., and C. S. Cheung (1991) The Friday the thirteenth effect: Myth or reality?. Quarterly Journal of Business and Economics 30, 111.

Chan, K., A. J. Menkveld, and Z. Yang (2008) Information asymmetry and asset prices: Evidence from the China foreign share discount. Journal of Finance 63, 159-196.

Chan, L. K. C., Y. Hamao, and J. Lakonishok (1991) Fundamentals and stock returns in Japan. The Journal of Finance 46, 1739-1764.

Chen, C. W. K., and H. Q. Yuan (2004) Earnings management and resource allocation: Evidence from China's accounting-based regulation of rights issues. The Accounting Review 79, 645-665.

Chen, Z., and P. Xiong (2001) Discounts on illiquid stocks: Evidence from China. Working paper, Yale University.

Collin, M. (2003) Traders ward off evil spirits: Halloween is just one more day in Wall Street's endless effort not to tempt fate. CNN/Money, CNNMoney.com, New York.

Daniel, K. D., D. Hirshleifer, and A. Subrahmanyam (1998) Investor psychology and security market under- and overreactions. Journal of Finance 53, 1839-1885.

Daniel, K. D., S. Titman, and K. C. J. Wei (2001) Explaining the cross-section of stock returns in Japan: Factors or characteristics?, Journal of Finance 56, 742-766.

Darke, P. R., and J. L. Freedman (1997) The belief in good luck scale. Journal of Research in Personality 31, 486-511.

De Robertis, M. M., and P. A. Delaney (1993) A survey of the attitudes of university students to astrology and astronomy. Journal of the Royal Astronomical Society of Canada 87, 34-50.

Ding, Y., H. N. Zhang, and J. J. Zhang (2007) Private vs state ownership and earnings management: evidence from Chinese listed companies. Corporate Governance: An International Review 15, 223-238.

Dyl, E. A., and E. D. Maberly (1988) The anomaly that isn't there: a comment on Friday the Thirteenth. Journal of Finance 43, 1285-1286.

Edmans, A., D. Garcia, and Ø. Norli (2007) Sports sentiment and stock returns. Journal of Finance 62, 1967-1998.

Eom, K. S., and J.-H. Park (2011) The factors-versus-characteristics debate in an individual emerging market: Evidence from Korea. International Research Journal of Finance & Economics 153-165.

Fama, E. F., and K. R. French (1993) Common risk factors in the returns on stocks and bonds. Journal of Financial Economics 33, 3-56.

Fama, E. F., and K. R. French (1997) Industry costs of equity. Journal of Financial Economics 43, 153-193.

Fan, J. P. H., T. J. Wong, and T. Zhang (2007) Politically connected CEOs, corporate governance, and Post-IPO performance of China's newly partially privatized firms, Journal of Financial Economics 84, 330-357.

Farha, B., and G. Steward (2006) Paranormal beliefs: An analysis of college students. Skeptical Inquirer 30, 37-40.

Friedman, E., S. Johnson, and T. Mitton (2003) Propping and tunneling. Journal of Comparative Economics 31, 732-750.

Gigerenzer, G., P. M. Todd, and ABC Research Group (1999) Simple Heuristics that Make Us Smart. Oxford University Press.

Goode, E. (2002) Education, scientific knowledge, and belief in the paranormal. Skeptical Inquirer 26, 24-27.

Goetzmann, W., D. Kim, A. Kumar and Q. Wang (2014) Weather-Induced Mood, Institutional Investors, and Stock Returns. Review of Financial Studies, forthcoming.

Grinblatt, M, M. Keloharju and J. Linnainmaa (2011) IQ, trading behavior, and performance. Journal of Financial Economics 104 (2): 339-362.

Guiso, L, P. Sapienza, and L. Zingales (2008), Trusting the Stock Market. The Journal of Finance, 63: 2557–2600.

Guo, H., and R. Brooks (2009) Duration of IPOs between offering and listing: Cox proportional hazard models—Evidence for Chinese A-share IPOs. International Review of Financial Analysis 18, 239-249.

Henderson, B. J., N. Jegadeesh, and M. S. Weisbach (2006) World markets for raising new capital. Journal of Financial Economics 82, 63-101.

Hirshleifer, D., and T. Shumway (2003) Good day sunshine: Stock returns and the weather. Journal of Finance 58, 1009-1032.

Hirshleifer, D. A., and S. H. Teoh (2003) Limited attention, information disclosure, and financial reporting. Journal of Accounting and Economics 36, 337-386.

Hong, H., J. C. Stein, and J. Yu (2007) Simple forecasts and paradigm shifts. The Journal of Finance 62, 1207-1242.

Jiang, Y., A. Cho, and R. Adaval (2009) The unique consequences of feeling lucky: Implications for consumer behavior. Journal of Consumer Psychology 19, 171-184.

Kolb, R. W., and R. J. Rodriguez (1987) Friday the thirteenth: 'Part VII' – A note. Journal of Finance 42, 1385-1387.

Kyle, A. S., and F. A. Wang (1997) Speculation duopoly with agreement to disagree: Can overconfidence survive the market test? The Journal of Finance 52, 2073-2090.

La Porta, R., F. Lopez-De-Silanes, A. Shleifer, and R. Vishny (2002) Investor protection and corporate valuation. Journal of Finance 57, 1147-1170.

Lang, L. H. P., E. Ofek, and R. Stulz (1996) Leverage, investment, and firm growth. Journal of Financial Economics 40, 3-29.

Lepori, G. M. (2009) Dark omens in the sky: Do superstitious beliefs affect investment decisions? Working paper, Copenhagen Business School.

Li, K., D. Griffin, H. Yue, and L. Zhao (2013) How Does Culture Influence Corporate Risk-Taking? Journal of Corporate Finance 23, 1-22.

Li, K., T. Wang, Y.-L. Cheung, and P. Jiang (2011) Privatization and risk sharing: evidence from the Split Share Structure Reform in China,. Review of Financial Studies 24, 2499-2525.

Liao, L., B. Liu, and H. Wang (2014) China׳s secondary privatization: Perspectives from the Split-Share Structure Reform. Journal of Financial Economics 113(3): 500-518.

Ljungqvist, A., and W. J. J. Wilhelm (2005) Does prospect theory explain IPO market behavior? Journal of Finance 60, 1759-1790.

Loughran, T., and J. R. Ritter (1995) The new issues puzzle. Journal of Finance 50, 23-51.

Loughran, T., and J. R. Ritter (2002) Why don't issuers get upset about leaving money on the table in IPOs? The Review of Financial Studies 15, 413-444.

Melamed, L., and B. Tamarkin (1996) Leo Melamed: Escape to the Futures. John Wiley & Sons Inc.

Morck, R., A. Shleifer, and R. W. Vishny (1988) Management ownership and market valuation: An empirical analysis. Journal of Financial Economics 20, 293-315.

Mowen, J. C., and B. Carlson (2003) Exploring the antecedents and consumer behavior consequences of the trait of superstition. Psychology and Marketing 20, 1045-1065.

Odean, T. (1998) Are investors reluctant to realize their losses? Journal of Finance 53, 1775-1798.

Peng, L., and W. Xiong (2006) Investor attention, overconfidence and category learning. Journal of Financial Economics 80, 563-602.

Peng, W. Q., K. C. J. Wei, and Z. Yang (2011) Tunneling or propping: Evidence from connected transactions in China. Journal of Corporate Finance 17, 306-325.

Petersen, M. A., (2009) Estimating standard errors in finance panel data sets: comparing approaches. Review of Financial Studies 22, 435-480.

Pronin, E., D. M. Wegner, K. McCarthy, and S. Rodriguez (2006) Everyday magical powers: the role of apparent mental causation in the overestimation of personal influence. Journal of Personality and Social Psychology 91, 218-231.

Rabin, M., and D. Vayanos (2010) The gambler's and hot-hand fallacies: Theory and applications. Review of Economic Studies 77, 730-778.

Ritter, J. R. (1991) The long-run performance of initial public offerings. Journal of Finance 46, 3-27.

Shiller, R. J. (2000) Measuring bubble expectations and investor confidence. Journal of Psychology and Financial Markets 1, 49-60.

Shiller, R. J.(2005) Irrational Exuberance, Princeton University Press.

Shiller, R. J., F. Kon-Ya, and Y. Tsutsui (1996) Why did the Nikkei crash? Expanding the scope of expectations data collection. Review of Economics and Statistics 78, 156.

Shlaes, A. (2007) The Forgotten Man: A New History of the Great Depression. HarperCollins Publishers, New York.

Shleifer, A., and R. W. Vishny (1986) Large shareholders and corporate control. Journal of Political Economy 94, 461-488.

Simmons, L. C., and R. M. Schindler (2003) Cultural superstitions and the price endings used in Chinese advertising. Journal of International Marketing 11, 101-111.

Sloan, R. (1996) Do stock prices fully reflect information in accruals about future earnings? The Accounting Review 71, 289-315.

Sun, Q., and W. Tong (2003) China share issue privatization: The extent of its success," Journal of Financial Economics 70, 183-222.

Teoh, S., T. J. Wong, and G. Rao (1998) Are accruals during initial public offerings opportunistic? Review of Accounting Studies 3, 175-208.

Teoh, S. H., I. Welch, and T. J. Wong (1998) Earnings management and the long-run market performance of initial public offerings. Journal of Finance 53, 1935-1974.

Yardley, J. (2006) Numbers game in China - Superstitions drive up license-plate prices. International Herald Tribune, New York.