Joshua D.Coval – Do Behavioral Biases Affect Prices

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Do Behavioral Biases Affect Prices

About this book

Do Behavioral Biases Affect Prices documents strong evidence for behavioral biases among Chicago Board of Trade proprietary traders and investigates the effect these biases have on prices. Our traders appear highly loss‐averse, regularly assuming above‐average afternoon risk to recover from morning losses. This behavior has important short‐term consequences for afternoon prices, as losing traders actively purchase contracts at higher prices and sell contracts at lower prices than those that prevailed previously. However, the market appears to distinguish these risk‐seeking trades from informed trading. Prices set by loss‐averse traders are reversed significantly more quickly than those set by unbiased traders.

Author: Joshua D.Coval

Joshua Coval, Professor of Business Administration in the Finance Area, joined HBS in July 2001. Prior to joining HBS, Joshua was an Assistant Professor of Finance at the University of Michigan Business School where he was on the faculty since 1996.

Joshua’s research focuses on the efficiency of security prices and examination of rational and behavioral sources of mispricing. His current research investigates the structured finance market and how investor reliance on ratings and unsound pricing models led to the spectacular rise and collapse thereof.  His research has been published in the Journal of Finance, the Journal of Financial Economics, the Journal of Political Economy, the Review of Financial Studies, the Journal of Business, and the Journal of Corporate Finance. His research awards include the 2000 and 2005 Smith-Breeden Prize for the best paper in the Journal of Finance.

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