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Search for News, Stock Quotes & NAV's In association w ith Opinion New By ET Bureau | 15 Nov, 2013, 12.00PM IST 0 comments | Post a Comment Ads by Google 1 Tip to Lose Belly Fat promo.puregce.com - Cut pounds of stomach fat every week by using this 1 weird old tip. Chief financial officers (CFOs), who are asked to explain movements in their own company’s stock prices, are astonishingly overconfident in their ability to get the forecast correct ET SPECIAL: Save precious time tracking your investments Economica: How corporate overconfidence impacts important policies READ MORE ON » Ohio State University | John Graham | Fuqua School of Business | Fisher College of Business | Duke University | Campbell Harvey Most of us know it is tough to forecast the stock market and would offer a wide range of possible outcomes if pressed for a prediction. Not true for financial executives. Chief financial officers (CFOs), who are asked to explain movements in their own company's stock prices, are astonishingly overconfident in their ability to get the forecast correct. According to a new research study by Itzhak Ben-David of Ohio State University's Fisher College of Business and John Graham and Campbell Harvey of Duke University's Fuqua School of Business, the range of outcomes that CFOs provide for oneyear stock market forecasts are unrealistically narrow. "These executives are too sure of their ability to predict the future. This overconfidence is linked to decision-making at their firms, so there is a real-world impact," says Ben-David. The study, published in the November issue of the Quarterly Journal of Economics, asked CFOs to predict a range of outcomes that would lead them to be 80% right. However, the ranges they gave were so narrow that they barely got 1 in 3 correct. "For example, they might say next year's return should fall in the range of -20 to +20%. If the market return is 10%, they are correct. But that is not what we found. They would give really tight ranges, like 11 to 18 percent. If the market return is 10%, they are wrong. This is a classic trait of severe overconfidence," said Harvey. The magnitude of the miscalibration led the researchers to investigate whether this overconfidence impacted the way they ran their businesses. Graham said executives were also asked to predict the range of possible outcomes for their firm's own investment projects, "and again they proved to be extremely overconfident. It is well known that Features 3 0 S 0 Post Comm S Share 0 Indiatimes | The Times of India | The Economic Times | More
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11/16/13 Economica: How corporate overconfidence impacts important policies - The Economic Times
economictimes.indiatimes.com/features/corporate-dossier/economica-how-corporate-overconfidence-impacts-important-policies/articleshow/25770844.cms 1/3
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Chief financial officers (CFOs), who are asked to explain
movements in their own company’s stock prices, are
astonishingly overconfident in their ability to get the forecast
correct
ET SPECIAL: Save precious time tracking your
investments
Economica: How corporateoverconfidence impacts importantpolicies
READ MORE ON » Ohio State University | John Graham | Fuqua School of Business | Fisher College of Business |Duke University | Campbell Harvey
Most of us know it is tough to forecast the
stock market and would offer a wide range of
possible outcomes if pressed for a
prediction. Not true for financial executives.
Chief financial officers (CFOs), who are
asked to explain movements in their own
company's stock prices, are astonishingly
overconfident in their ability to get the
forecast correct.
According to a new research study by Itzhak
Ben-David of Ohio State University's Fisher
College of Business and John Graham and
Campbell Harvey of Duke University's Fuqua School of Business, the range of outcomes that
CFOs provide for oneyear stock market forecasts are unrealistically narrow. "These
executives are too sure of their ability to predict the future. This overconfidence is linked to
decision-making at their firms, so there is a real-world impact," says Ben-David.
The study, published in the November issue of the Quarterly Journal of Economics, asked
CFOs to predict a range of outcomes that would lead them to be 80% right. However, the
ranges they gave were so narrow that they barely got 1 in 3 correct. "For example, they might
say next year's return should fall in the range of -20 to +20%. If the market return is 10%, they
are correct. But that is not what we found. They would give really tight ranges, like 11 to 18
percent. If the market return is 10%, they are wrong. This is a classic trait of severe
overconfidence," said Harvey.
The magnitude of the miscalibration led the researchers to investigate whether this
overconfidence impacted the way they ran their businesses. Graham said executives were
also asked to predict the range of possible outcomes for their firm's own investment
projects, "and again they proved to be extremely overconfident. It is well known that
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11/16/13 Economica: How corporate overconfidence impacts important policies - The Economic Times
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11/16/13 Economica: How corporate overconfidence impacts important policies - The Economic Times
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