Markku Kaustia and Milla Perttula won the Emerald 2013 Award for Excellence – Outstanding Paper Award for their article “Overconfidence and debiasing in the financial industry” published in Review of Behavioral Finance.

Every year Emerald invites each journal’s Editorial Team to nominate what they believe has been that title’s Outstanding Paper and up to three Highly Commended Papers from the previous year (2012). Further information regarding the Awards for Excellence can be found at the following site: www.emeraldinsight.com/literati.

Abstract of the awarded article

Purpose – The purpose of this paper is to measure overconfidence amongst finance professionals in domain relevant knowledge, and test for the impact of different debiasing methods.
Design/methodology/approach – The approach used was survey field experiments with varying debiasing attempts.
Findings – The subjects were overconfident in terms of probability calibration, better-than-average beliefs, and unfounded confidence. Debiasing attempts yielded mixed results. Explicit written warnings reduced better-than-average-type of overconfidence. There was a further strong effect from attending lectures on investor psychology covering relevant examples. In contrast, there was only
limited success in reducing miscalibration in probability assessments.
Research limitations/implications – Different types of overconfidence are distinct and respond differentially to debiasing. Future research on debiasing professional judgment should concentrate on testing in-depth/personally engaging methods.
Practical implications – It is important for bankers to acknowledge the dangers of overconfidence. Correct confidence interval calibration is needed in order to have a sense of the risks involved in different asset allocation policies and trading strategies. Bankers should also be able to help their clients avoid overconfidence.
Social implications – Debiasing overconfidence in the finance industry likely carries public benefits. The results imply that this task is not easy, but not impossible either. The authors think further investment in this endeavor is justified.
Originality/value – Documenting an important judgment bias among finance professionals and estimating the effects of debiasing.

Citation

Kaustia, Markku and Perttula, Milla, 2012, “Overconfidence and debiasing in the financial industry”, Review of Behavioral Finance 4(1), 46-62. DOI: 10.1108/19405971211261100

For more information please contact Markku Kaustia.

Professor Matti Keloharju has been invited to take up the new Eero Kasanen Chair established for the Aalto University School of Business. Professor Keloharju has worked as Professor of Finance at the Helsinki School of Economics and at the Aalto University School of Business since 1999.

In 2010, Aalto University established three professorships to honour the work of the rectorsof the three founding universities. Persons who are especially distinguished in their field of science are appointed to the professorships. Professor Eero Kasanen served as the Rector of the Helsinki School of Economics between 1996 and 2009. In addition to the professorship now filled, the Yrjö Sotamaa Chair (New frontiers in design) and the Matti Pursula Chair (Sustainable energy solutions) have been established. The process of filling the two last-mentioned professorships is under way.

Professor Matti Keloharju is an internationally recognised and scientifically distinguished Professor of Finance at the Aalto University School of Business. He has worked at the school since 1992 and as a professor since 1999. He has been a visiting scholar at the Anderson School of Management of the University of California and at the Stern Business School of New York University in the United States. 

Matti Keloharju is one of the world's leading researchers especially in the field of Behavioural Finance. He has published several articles in the most high-ranking finance journals. He is one of the most cited researchers in Europe in the field of finance.

Petri Jylhä won the OP-Pohjola Group Research Foundation Doctoral Dissertation Award, for his doctoral dissertation “Essays on the Economics of Hedge Funds”. Petri's PhD studies were supervised by Professor Matti Suominen. Currently Petri is an Assistant Professor of Finance at Imperial College Business School.

More information:

OP Pohjola group prize announcement

Matti Suominen receives the Thirst for Knowledge Best Teacher of the Year award by Aalto University Executive Education.

For further information please visit the Thirst for Knowledge awards announcement.

Professor Matti Keloharju has won the Best Conference Paper Award at the 2010 European Finance Association Meeting in Frankfurt.

The title of the winning paper is “Do Smart Investors Outperform Dumb Investors?” and it is a joint work with Professors Mark Grinblatt (University of California in Los Angeles) and Juhani Linnainmaa (University of Chicago).

The Best Paper Award is the highest distinction awarded for an academic paper during this prestigious conference. More than 1,300 manuscripts were submitted to the conference, 220 were selected to its program, and three papers were awarded the Best Paper Prize.

The awarded paper is the first to uncover a direct link between cognitive ability and investment performance. Combining data from ability tests performed by the military with trading records of 87,000 investors, the paper finds that smart investors’ purchases are informative about future stock price movements. The influence of ability on stock-picking skill is particularly strong for returns measured two days after the trade, when the purchases of the smartest investors outperform the purchases of their below-average ability peers at an annualized rate of about 11% per year. High ability investors’ purchases earn superior and significant returns up to one month in the future. The performance of smart investors’ sell transactions does not differ significantly from that of their lower-ability peers.

More information:

Matti Keloharju's homepage

EFA confrence website

Markku Kaustia, Heidi Laukkanen and Vesa Puttonen won the Emerald Management Reviews Citation of Excellence award for their article "Should good stocks have high prices or high returns?" published in Financial Analysts Journal in 2009.

Emerald Management Reviews Citation of Excellence is awarded to the 50 best articles published in 2009 and covered by the Emerald Management Reviews. Emerald Management Reviews is an abstracting and indexing database that covers every article in the top 400 business and management journals world-wide such as American Economic Review, Harvard Business Review, Journal of Finance, Journal of Marketing, Strategic Management Journal and Administrative Science Quarterly. The top 50 articles were selected from 15,000 articles reviewed by Emerald throughout 2009.

For more information please contact Markku Kaustia

Abstract

Using a design involving a between-subjects experimental manipulation, this study surveyed 742 Finnish financial advisers about requiring a risk premium in one mode and about expected returns in the other mode. Company-level risk factors (e.g., leverage) caused an increased return requirement in the first mode but led to lower return expectations in the second mode. Sensitivity to the form of the question revealed an inconsistency in the advisers’ perception of risk and return. Advisers seemed to associate safe stocks with relatively lower discount rates (and thus higher valuations), but also with higher return expectations. This inconsistency may contribute to the overpricing and subsequent inferior performance of glamour stocks. Giving consistent advice is a necessary condition for providing valuable client service.

Citation

Kaustia, Markku, Heidi Laukkanen, and Vesa Puttonen, 2009, "Should good stocks have high prices or high returns?", Financial Analysts Journal 65, No. 3 (May/June), 55-62.