Essays on behavioural finance: Effects of salience and sleep deprivation on asset pricing

Cheema, Arbab 2021. Essays on behavioural finance: Effects of salience and sleep deprivation on asset pricing. PhD Thesis, Cardiff University. Item availability restricted.

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Abstract

This thesis comprises three essays; the first two essays are related to an intra-week variation in comovement and its behavioural explanation, and the third essay pertains to the behavioural effect of sleep deprivation on stock returns caused by watching late-night TV shows. The first essay provides evidence of an intra-week pattern in comovement of stock returns in the U.S., whereby it is significantly higher on Mondays over a 90-year period. The pattern is stronger in both up-market and down-market conditions among firms which are large, old, and have less idiosyncratic volatility. Hence, neither Monday anomaly in returns nor investor sentiment can explain this pattern. Higher (lower) uncertainty over longer (shorter) weekends contributes to increasing (decreasing) Monday's comovement. The second essay proposes an explanation for higher Monday comovement based on the simultaneous contrast effect, i.e., perception of a stimulus depending on its surrounding environment. Just as a thunder in a quiet night sounds relatively louder, release of macroeconomic news on Mondays, which typically see fewer announcements than other weekdays, leads to a stronger market comovement. These findings are robust after controlling for economic uncertainty, risk aversion, and attention to firm-specific and macroeconomic news. The third essay provides evidence that the cultural trend of watching late-night TV has become widespread enough to affect financial markets by causing sleep loss. Market returns significantly decline on days following the release of popular late-night TV shows. The effect is stronger in stocks with larger market capitalisation, higher price, higher institutional ownership, and higher B/M ratio. Sleep deprived investors are willing to take less risk and the resulting demand for higher premiums causes current stock prices to decrease. The decline in returns is stronger if market uncertainty is high. These effects are unaccompanied by any change in trading activity of retail or institutional investors.

Item Type:	Thesis (PhD)
Date Type:	Completion
Status:	Unpublished
Schools:	Business (Including Economics)
Subjects:	H Social Sciences > H Social Sciences (General)
Uncontrolled Keywords:	salience, news announcement, Monday anomaly, synchronicity, sleep loss, late-night TV
Date of First Compliant Deposit:	5 May 2022
Last Modified:	10 Jun 2023 01:57
URI:	https://orca.cardiff.ac.uk/id/eprint/149541

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