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November 13, 2025Journal of Accounting Literature

Investor overconfidence and stock price crash risk

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Authors

HCHasibul ChowdhuryKHKhoa HoangRHRonghong Huang

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Overview

Analysis reveals increased stock price crash risk linked to investor overconfidence, indicating the role of corporate governance.

Key Points

  • Stock price crash risk increases as investor overconfidence leads to earnings management practices, and managers withhold bad news.
  • Regression analysis from 1988 to 2018 using mutual fund data highlights the correlation between overinvesting and crash risk.
  • Observational analysis of mutual funds demonstrates that firms with overconfident investors experience significant valuation impacts.
  • Strong corporate governance may mitigate risks associated with overconfident investors, suggesting a need for better management accountability.

Cite This Study

Chowdhury et al. (2025) studied this question.

synapsesocial.com/papers/692523c1c0ce034ddc354c44https://doi.org/10.1108/jal-02-2025-0074
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Also Consider

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