Many companies have their own accountants that study cash flows and how it affects stock values. In this research study, Sloan and Lehavy (2008) study the effect of how behavior contributes to stock variation. These authors "argue that one possible explanation for this surprising result is that stock returns reflect cognitive bias, not only fundamentals" (Bartov, 2008, para. 1). One problem that obviously affects the study is the fact that people are in fact biased. "The idea that cognitive bias is inherent in human behavior is rooted in the field of social cognition" (e.g., Kahneman and Tversky 1973a, b; Tversky and Kahneman 1974). The author, Bartov (2008), goes on to say, "This behavior represents a tradeoff between correct inference and efficiency, andleads people to make decisions based on only a subset of the information available tothem" (para. 1).
Business ProblemsThe business problems under fire in this study are whether or not consumer behavior is the cause of stock variation.
Werner Erhard and Associates v. Christopher Cox fo...
Daniel Kahneman
Persian fallow deerBartov studies whether these authors can actually see a relationship of motivation between consumer behavior and stock variations. He also tries to "consider methodological issues and evaluate the interpretation of the findings in light of those issues" (Bartov, 2008, para. 1).
Data Collection MethodsBartov uses several data collection methods in this research study. One data collection method he uses is the findings of other studies. The study of B. Lev (1989) "shows that earnings of U.S. companies explain less than 10% of the variation in their stock returns" (Bartov, 2008, para. 2). Bartov also uses Liu and Thomas (2000) to show that they can show up to 30% variations. He then uses Dechow (1994). "Dechow (1994) demonstrates that cash flows are no better than earnings in explaining the variation of stock returns. Her primary finding shows that the R2 is...