Under- and Overconfidence, Asset Pricing and Corporate Policy

This paper offers a model that asset price is a comprehensive function by the confidence, signal and market. To measure the abnormal variation of price, we cite and improve a pricing model ever only on overconfidence and expand it to both under- and overconfidence. New pricing model implies, under market prosperous, investors are average overconfident and security price reacts more drastically to positive signal than to the negative, but which reverse under the slack. These persuasive conclusions not only demonstrate the improvement be effective, but also enlighten people to make all kinds of relevant policies.