ISBN: 3540140077
TITLE: Irrational Exuberance Reconsidered
AUTHOR: Klpmann
TOC.

I Irrational Exuberance Reconsidered 1
1 Stock Market Overreaction and Portfolio Management - An Interview with Barbara Rega, CFA, and Bernd Meyer, CFA 3
1.1 Fundamental Valuation, Financial Modelling, and the Cross Section of Stock Returns 3
1.2 Equity Risk Premium 11
1.3 Behavioural Finance 13
1.4 Corporate Control 19
1.5 Outlook 24
2 Scope of Analysis 31
II Overshooting in the Cross Section of Stock Returns: The Winner-Loser Effect 37
3 Literature 39
3.1 Methodology 39
3.2 Market Efficiency 40
3.3 The Winner-Loser Effect: Explanations 41
3.4 A More Detailed Look at the Literature 46
3.5 Summary 52
4 Empirical Evidence for Germany 53
4.1 The Winner-Loser Hypothesis and the Dataset 53
4.1.1 Hypothesis 53
4.1.2 Dataset 55
4.2 The Standard Approach 59
4.2.1 Evidence for the Pooled Sample 60
4.2.2 Test Methodology 65
4.2.3 Evidence on a Yearly Basis 69
4.2.4 Survivorship Bias 70
4.3 Transition Matrix 71
4.4 Summary 75
III Explaining the Cross Section of Stock Returns: CAPM versus Fundamentals 77
5 Explaining the Winner-Loser Effect: Theory 79
5.1 Rational Asset Pricing 80
5.2 Unexpected Changes in Fundamentals and Unexpected Returns 85
5.3 Fundamentals and Rational Asset Pricing 88
5.3.1 Preliminary Remark 89
5.3.2 A Two-Period Framework 90
5.3.3 Expected Excess Returns during the Test Period 93
5.3.4 Excess Returns during the Formation Period 96
5.3.5 Intertemporal Dependence 98
5.3.6 Final Remark and Summary 101
5.4 Summary 102
6 The CAPM and the Winner-Loser Effect 103
6.1 Explaining the Winner-Loser Effect 104
6.1.1 Hypotheses 105
6.1.2 Estimation Results 106
6.1.3 Discussion 109
6.2 Expectation Building 112
6.2.1 Theory 112
6.2.2 Hypothesis and Empirical Results 113
6.2.3 Discussion 116
6.3 Summary 118
7 Fundamentals and the Winner-Loser Effect 121
7.1 Movements in Fundamentals 122
7.1.1 Dividends 124
7.1.2 Profits 126
7.1.3 Profit Components 129
7.1.4 Summary 134
7.2 Differences between the Winner and the Loser Portfolio - A Binary Choice Approach 135
7.2.1 Econometric Methodology 136
7.2.2 Estimation Results 137
7.2.3 Summary 144
7.3 Movements in Fundamentals and Changes in the Exposure to Systematic Risk 144
7.3.1 Hypothesis 145
7.3.2 Results 146
7.3.3 Discussion 149
7.3.4 Summary 151
7.4 Summary 151
8 Fundamentals versus Beta - What Drives Stock Returns? 153
8.1 Fundamentals versus Beta: A Horse Race 154
8.1.1 Hypotheses 154
8.1.2 Estimation Results 157
8.1.3 Summary 164
8.2 Time Horizon and Portfolio Effects, Nonlinearities 165
8.2.1 Hypotheses 165
8.2.2 Estimation Results 167
8.2.3 Discussion 173
8.3 Summary and Outlook 177
IV Corporate Control - 183
9 Reversals in Stock Returns and Temporary Problems of Corporate Control 185
9.1 Problems of Corporate Control: Hypotheses 185
9.2 Estimation Results 190
9.3 Discussion 196
9.4 Summary 197
Conclusion 205
References 213
Author Index 223
Index 227
END

