Ross School Professor Recognized for Outstanding Research in Finance
Tyler Shumway receives prestigious prize for best paper.
ANN ARBOR, Mich.—Tyler Shumway, associate professor of finance at the Stephen M. Ross School of Business at the University of Michigan, recently was awarded the 2005 Smith Breeden prize by the Journal of Finance for his paper, "Do Behavioral Biases Affect Prices?"
The paper, co-written with Joshua Coval, documents strong evidence of behavioral biases among Chicago Board of Trade proprietary traders and investigates the effect these biases have on prices.
The authors say that traders who experience morning losses are about 16 percent more likely to assume above-average afternoon risk than traders with morning gains. This behavior, they add, has important short-term consequences for afternoon prices, as losing traders are prepared to purchase contracts at higher prices and sell contracts at lower prices than those that prevailed previously. However, during the 10 minutes that follow these trades, prices revert strongly to their earlier levels.
The paper also states that short-term afternoon price volatility is positively related to the prevalence of morning losses among locals, but overall afternoon price volatility is not.
The award, funded by investment firm Smith Breeden Associates, is given annually to the top three papers published in the Journal of Finance in any area other than corporate finance. The winning papers are chosen by the associate editors.
The Journal of Finance publishes leading research across all the major fields of financial research and is one of the most widely cited academic journals on finance and economics. Published six times a year, the journal is the official publication of the American Finance Association—the premier academic organization devoted to the study and promotion of knowledge about financial economics.
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