Behavioral Finance Economics 437

Haugen-Baker, 1996 Great summary of the literature A Grand Synthesis Use multi-factor model to create a “generalized” value portfolio Incorporate J-T effects 20 percent outperformance for H-B synthesis Data used from five countries: France, Germany, Japan, UK, US

Hanna-Ready, 2005 Dispute H-B results due to monthly turnover (40 percent) in HB rebalancing (causes high transaction costs) Conclude that six month rebalancing of F-F portfolios is best Most of H-B results come from J-T. J-T results fall if transaction costs considered Cannot explain why F-F does so well

Cooper, McConnell, Ovtchinnikov “We find that January has predictive power for two of the three premiums in the Fama-French three-factor model of asset pricing.” Data 1940-2003

Lakonishok and Smidt 1988 “Are Seasonal Anomalies Real? A Ninety Year Perspective? Data from daily closes of DJ from 1897 to 1986 Theory as protection agst data snooping…. Interesting data facts No stock market from Aug 1 to Dec 12 in 1914 Saturday trading until June 1, 1952 Results No January effect for large stocks (high market cap stocks) First half of the month not significantly “better” than 2nd half of the month Blue Monday; Last trading date of the week positive Positive “day before holiday” effect; holiday effect twide end of week effect; rates negative after holidays Pre-Xmas negative; post-Xmas positive Turn of the month effect

The End