There are number of research studies pointing to stock market anomalies which cannot be explained with standard financial theory. Generally, investors have not shown logical reaction to the new information but are many times overconfident in their behavior. Therefore, the core behavioral factor and the most robust finding in the psychology of judgment needed to understand market anomalies is overconfidence.

The blend of overconfidence and optimism causes people to overestimate their awareness, undervalue risks and exaggerate their ability to control events, which results in excessive trading volume and speculative bubbles in many markets.

Against this backdrop, the first paper of this issue, "A Dynamic Variation of Risk Aversion Approach: A Study of Momentum and Reversal Premiums", by Dorsaf Ben Aissia, tries to explain the under and overreaction to news on market, based on the investor preference function. The author states that this function is modeled as a dynamic loss aversion and individual narrow framing function. The findings show that this utility function clarifies the equity market premium. In fact, if investor gets utility directly from the changes in the value of his individual stock returns and if he is more perceptive to losses than to gains, he agrees to invest on market only if he is rewarded by a higher average return. Secondly, the findings support that the evidence of negative information penetrates markets slowly. The researcher further argues that, besides, as loss aversion is dynamic over time, a successive series of negative earning leads to the fact that investor feels sad and painful, and generates a sustainable overreaction on financial market.

The second paper, "Measurement of Conformity to Behavior Finance Concepts and Association with Individual Personality", by Ramesh Krishnan and Fatima Beena, attempts to link the behavioral finance predictions to personality. The authors constructed a measurement instrument and followed the Big Five model as the personality measurement tool for their research. The five measurement factors considered are: the personality dimensions, extraversion, openness to experience, agreeableness and conscientiousness. The tendency to conform to behavior finance scale that the researchers developed for measuring the phenomenon exhibited two dimensions: One dimension is strongly related to experience and the other is strongly related to the personality dimensions of openness and extraversion.

In view of the stock market crash and fall of stock market indices in India during 2008, the third paper, "Investment Behavior and the Indian Stock Market Crash 2008:

An Empirical Study of Student Investors", by Koustubh Kanti Ray, attempts to analyze the investment behavior and attitude of student investors. Furthermore, the purpose of this study is to establish what factors lie behind the crash and investigate whether the investment objectives and factors influencing investment decision-making are different during and after the market crash. The findings of the research suggest that the behavior of market participants during the speculative bubble was to some extent unreasonable and that the composition of investments has changed as a consequence of market crash. When compared the time period after the speculative bubble, information available from companies gained significance for all investors. This specifies an increase in the importance of fundamental data of the companies after the crash than during the speculative bubble, when intuition and other unclear valuation methods seemed to have influenced investments to a greater extent.

The fourth paper, "A Bayesian Analysis of Lunar Effects on Stock Returns", by Shu-Ing Liu and Jauling Tseng, uses the Bayesian analysis to explore lunar effects on daily stock returns. The associations between lunar effects and daily stock returns are examined by the parameter posterior distributions. The discussed model is applied to daily stock returns of the G7 markets: Canada, France, Germany, Italy, Japan, the UK and the US. Moreover, some Asian areas, such as Hong Kong, Shanghai, Singapore, South Korea and Taiwan, are also included in the study. Based on the posterior inferences, the researcher's investigation of the lunar effects focuses on three dimensionsthe mean daily return, the autocorrelation among consecutive daily returns and the return volatility in terms of the GARCH(1,1) effect. The authors found that, for most of the G7 markets, the mean daily returns are higher in the new moon period than in the full moon period.

The autocorrelation among the consecutive daily returns is positively correlated in the full moon period. The return volatilities are higher in the full moon period. In contrast, the results for some of the Asian markets are the opposite: there are slightly higher mean daily returns in the full moon period, though not very strong. The autocorrelation between consecutive daily returns is also positively correlated in the new moon period. The researchers further confirm that Hong Kong due to its close connection in terms of international trade and finance with developed countries, although in Asia, shows results that are rather similar to those of the G7 markets.

The last paper, "An Analysis of the Behavior of Teaching Community Towards Consumption: A Case Study", by Ananthapadhmanabha Achar, examines the attitude and behavior of the teachers towards consumption, and their economic behavior and implications. The researcher set two hypotheses according to the objective of the study. The first hypothesis is that individual characteristics of teachers such as age, gender, marital status and lifestyle determine their decisions to consume. The second hypothesis reports that family characteristics of teachers such as monthly family income and family earning status determine their decisions to consume. The findings reveal that except in the case of monthly income of the family, in all other cases there is a significant relationship between the determinants and consumption behavior of the respondents. The level of consumption is very high in cases like those who are below 25 years of age, in case of males, married respondents, in case of middle income groups, in nuclear families, presence of grown up dependent children, having urban background, and in case of fun seekers. The author also found that the levels of consumption are found to be low in the case of those who are above 55 years, females, single status respondents, undergraduates and single-earner families.

-- K K Ray
Consulting Editor