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Irrational Exuberance Reconsidered : The Cross Section of Stock Returns - Mathias Kulpmann

Irrational Exuberance Reconsidered

The Cross Section of Stock Returns

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Published: 1st March 2004
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Does the stock market overreact? Recent capital market turbulences have cast doubt whether the behaviour of stock markets is in line with rational investor behaviour. To which extent stock returns are predictable is the question at the heart of the controversy between the paradigms of rational asset pricing and behavioural finance. This new and revised edition discusses the empirical evidence from both perspectives. Theory and empirical analysis are blended with feedback from security analysts to offer a road towards a deeper understanding of the underlying forces to drive performance in the stock market.In his book Irrational Exuberance" Robert Shiller offered an analysis of the US stock market in 2000. The focus of his book was the level of the stock market, which he thought to be overvalued at the time. This monograph offers a complementary analysis of the cross section of stock returns.

From the reviews of the second edition:

"This book provides a highly stimulating contribution to the controversial discussion on stock return predictability, combining theory, thorough empirical analysis and feedback from security analysts." Gunter Franke, Professor of International Finance, Chairman of the Center of Finance and Econometrics, University of Konstanz

"Irrational Exuberance Reconsidered takes a look at current turmoils in the stock market and provides an up to date discussion of the underlying issues." Harris Schlesinger, Professor of Finance and Frank Park Samford Chair of Insurance, University of Alabama

"State of the art analysis and new insights into the interaction between fundamentals and the stock market. Anybody interested in stock market overreaction should have a look." Winfried Pohlmeier, Professor of Economics and Econometrics, Research Professor at the Center of European Economic Research (ZEW)

"Compelling and intriguing: an interesting read for academics and practitioners alike. Current outlook: A strong buy." Dieter Hess, Professor of Finance, Hochschule fur Bankwirtschaft, Frankfurt

"Combining academic research with practical experience, this book offers a new concept of a research monograph." Erik Luders, Professor of Finance, Universite Laval, Quebec, and Visiting Scholar, Leonard N. Stern School of Business, New York University

"The present monograph investigates the so-called Winner-Loser Effect (WLE) and the questions, whether it may occur in rational pricing theory or is due to irrational behavior ... . In my view, this book on finance has impact on the modeling ... . Furthermore, the introductory review is from my understanding nice ... . each unit within the monograph has an own introduction, outline and summary and can be read independently ... . In conclusion, an interesting start for further research." (Andreas Bartel, Zentralblatt MATH, Vol. 1089 (15), 2006)

Irrational Exuberance Reconsideredp. 1
Stock Market Overreaction and Portfolio Management - An Interview with Barbara Rega, CFA, and Bernd Meyer, CFAp. 3
Fundamental Valuation, Financial Modelling, and the Cross Section of Stock Returnsp. 3
Equity Risk Premiump. 11
Behavioural Financep. 13
Corporate Controlp. 19
Outlookp. 24
Scope of Analysisp. 31
Overshooting in the Cross Section of Stock Returns: The Winner-Loser Effectp. 37
Literaturep. 39
Methodologyp. 39
Market Efficiencyp. 40
The Winner-Loser Effect: Explanationsp. 41
A More Detailed Look at the Literaturep. 46
Summaryp. 52
Empirical Evidence for Germanyp. 53
The Winner-Loser Hypothesis and the Datasetp. 53
Hypothesisp. 53
Datasetp. 55
The Standard Approachp. 59
Evidence for the Pooled Samplep. 60
Test Methodologyp. 65
Evidence on a Yearly Basisp. 69
Survivorship Biasp. 70
Transition Matrixp. 71
Summaryp. 75
Explaining the Cross Section of Stock Returns: CAPM versus Fundamentalsp. 77
Explaining the Winner-Loser Effect: Theoryp. 79
Rational Asset Pricingp. 80
Unexpected Changes in Fundamentals and Unexpected Returnsp. 85
Fundamentals and Rational Asset Pricingp. 88
Preliminary Remarkp. 89
A Two-Period Frameworkp. 90
Expected Excess Returns during the Test Periodp. 93
Excess Returns during the Formation Periodp. 96
Intertemporal Dependencep. 98
Final Remark and Summaryp. 101
Summaryp. 102
The CAPM and the Winner-Loser Effectp. 103
Explaining the Winner-Loser Effectp. 104
Hypothesesp. 105
Estimation Resultsp. 106
Discussionp. 109
Expectation Buildingp. 112
Theoryp. 112
Hypothesis and Empirical Resultsp. 113
Discussionp. 116
Summaryp. 118
Fundamentals and the Winner-Loser Effectp. 121
Movements in Fundamentalsp. 122
Dividendsp. 124
Profitsp. 126
Profit Componentsp. 129
Summaryp. 134
Differences between the Winner and the Loser Portfolio - A Binary Choice Approachp. 135
Econometric Methodologyp. 136
Estimation Resultsp. 137
Summaryp. 144
Movements in Fundamentals and Changes in the Exposure to Systematic Riskp. 144
Hypothesisp. 145
Resultsp. 146
Discussionp. 149
Summaryp. 151
Summaryp. 151
Fundamentals versus Beta - What Drives Stock Returns?p. 153
Fundamentals versus Beta: A Horse Racep. 154
Hypothesesp. 154
Estimation Resultsp. 157
Summaryp. 164
Time Horizon and Portfolio Effects, Nonlinearitiesp. 165
Hypothesesp. 165
Estimation Resultsp. 167
Discussionp. 173
Summary and Outlookp. 177
Corporate Controlp. 183
Reversals in Stock Returns and Temporary Problems of Corporate Controlp. 185
Problems of Corporate Control: Hypothesesp. 185
Estimation Resultsp. 190
Discussionp. 196
Summaryp. 197
Conclusionp. 205
Referencesp. 213
Author Indexp. 223
Indexp. 227
Table of Contents provided by Publisher. All Rights Reserved.

ISBN: 9783540140078
ISBN-10: 3540140077
Series: Springer Finance
Audience: Tertiary; University or College
Format: Hardcover
Language: English
Number Of Pages: 230
Published: 1st March 2004
Publisher: Springer-Verlag Berlin and Heidelberg Gmbh & Co. Kg
Country of Publication: DE
Dimensions (cm): 23.5 x 15.5  x 1.91
Weight (kg): 1.17
Edition Number: 2
Edition Type: Revised