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Synapse
February 21, 2026Management Science

Time Variation in Extrapolation and Anomalies

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Authors

WHWei HeZSZhiwei SuYWYuehan Wang

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Overview

This analysis reveals strong predictive power of extrapolative weighting on stock market anomalies, suggesting implications for investors.

Key Points

  • The aim is to evaluate how extrapolative weighting in investor beliefs influences stock market anomalies.
  • Analyzed predictive power of extrapolative weighting (DOX) on stock market anomalies.
  • Assessed returns following high and low DOX periods.
  • Controlled for various economic forces to ensure robustness of findings.
  • Found strong predictive power of DOX for overreaction-related anomalies.
  • Average return spread following high DOX periods was significantly different from low DOX periods.
  • Showed that most DOX effect comes from short legs of overreaction anomalies.

Cite This Study

He et al. (2026) studied this question.

synapsesocial.com/papers/69994cc2873532290d0217fehttps://doi.org/10.1287/mnsc.2024.06850
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