Driven by outliers? The size and winner-loser effects in U.S. stock returns, 1931-2021

Presenter Professor Werner De Bondt (DePaul University, Chicago, US)

Hosts: Dr. Stavros Kourtzidis and Dr. Egor Kiselev

Professor De Bondt studies the rationality and irrationality of investors, markets, and organizations. He has investigated key research questions such as the intuitive tendency of naïve investors to extrapolate past trends in stock prices and corporate earnings, market overreaction, bubbles, the excessive self-confidence of traders, and their herding instinct. 

Key facts:

• One of the founders of the field of behavioural finance.
• 3,357 citations of his paper in the Journal of Finance “Does the Stock Market Overreact?”. Co-author – Nobel Prize winner Richard Thaler.
• Frequent speaker to academics and investment professionals around the world.
• Numerous academic articles (among others, in the Journal of Finance, the Financial Analysts Journal, the European Economic Review, and the American Economic Review).

We study the size and winner-loser effects in U.S. stock returns. Both effects are present in U.S. data between 1931 and 2021, and after the 1980s, but both effects also vanish after merely 2% of extremely large positive or large negative returns are removed. Our analysis invites a more refined interpretation of return anomalies, risk factors, and their investment management implications.

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