Behavioral finance.

• Position: Conference held on October 29, 1998

Members of the NBER's Behavioral Finance Project Meeting met in Chicago on October 29. Robert J. Shiller, NBER and Yale University, and Richard H. Thaler, NBER and the University of Chicago, organized this program:

Josef Lakonishok, NBER and University of Illinois, and Louis Chan and Theodore Sougiannis, University of Illinois, "The Stock Market Valuation of Research and Development Expenditures"

Discussant: Werner De Bondt, University of Wisconsin

Jeremy C. Stein, NBER and MIT; Harrison Hong, Stanford University; and Terence Lim, MIT, "Bad News Travels Slowly: Size, Analyst Coverage, and the Profitability of Momentum Strategies" (NBER Working Paper No. 6553)

Discussant: Narasimhan Jegadeesh, University of Illinois

David Genesove, NBER and Hebrew University, and Christopher J. Mayer, Columbia University, "Nominal Loss Aversion and Seller Behavior: Evidence from the Housing Market"

Discussant: Terrance Odean, University of California, Davis

Charles M. Lee and Bhaskaran Swaminathan, Cornell University, "Price Momentum and Trading Volume"

Discussant: Andrei Shleifer, NBER and Harvard University

Brad Barber, University of California, Davis; Reuven Lehavy, University of California, Berkeley; Maureen McNichols, Stanford University; and Brett Trueman, University of California, Berkeley, "Can Investors Profit from the Prophets? Consensus Analyst Recommendations and Stock Returns"

Discussant: Kent Womack, Dartmouth University

Shlomo Benartzi, University of California, Los Angeles, and Richard H. Thaler, "Naive Diversification Strategies in Defined Contribution Saving Plans"

Discussant: John Y. Campbell, NBER and MIT

Lakonishok, Chan, and Sougiannis find that there is no tendency for R and D-intensive firms systematically to underperform or outperform other firms. Thus the stock market does not systematically under- or overvalue R and D expenditures. However, within the population of past losers - stocks that have underperformed the market - R and D intensive firms do tend to outperform other firms. The authors attribute this to superior managerial information about the future prospects of the firm, which is revealed through R and D decisions but is not valued properly by the market.

Stein, Hong, and Lim postulate that momentum effects in individual stock returns - that is, the tendency for past winners to outperform past losers - are attributable to the gradual diffusion of private information about firms' profitability. Several facts in their data...