DeBondt and Thaler (1990) argue that the P/E effect can be explained by
A) forecasting errors.
B) earnings expectations that are too extreme.
C) earnings expectations that are not extreme enough.
D) regret avoidance.
E) forecasting errors and earnings expectations that are too extreme.

Question

Quizplus · Accepted Answer

DeBondt and Thaler (1990) argue that the P/E effect can be explained by forecasting errors and earnings expectations that are too extreme. This means investors often make mistakes in forecasting future earnings and tend to have overly extreme expectations about future earnings, which can lead to mispricing in the stock market.

DeBondt and Thaler (1990) Argue That the P/E Effect Can