Minds Of Investors Research Articles

Investor Impulsivity and Mental Accounting: A Gender-Centric Investigation

This study aims to examine how impulsivity is related to mental accounting in individual investors and to test whether gender moderates the relationship between the three types of impulsivities and mental accounting. Structural equation modelling was adopted to establish the impact of three types of impulsivities towards mental accounting. Construct reliability and validity were checked by Confirmatory Factor Analysis using Analysis of Moment Structures (AMOS) software. Multi-group analysis was also performed using AMOS 23. The level of mental accounting in participants was negatively correlated with non-planning impulsivity. However, gender differences were observed in the multi-group analysis. Gender significantly moderated the relationship between attentional impulsivity and mental accounting as well as between motor impulsivity and mental accounting. This study has practical implications on financial advisors and government, who can take individual differences in socio-demography and psychology into account while designing financial products and tools for money management. Since governments also have a major role in spreading financial literacy and awareness to improve the financial well-being of their citizens, individual differences in mental accounting are an important aspect that need to be studied and dealt with and this study will provide a preliminary foresight into these differences. This study may further help Asset Management Companies in customizing and engineering financial products according to the distinct needs of every individual. This study offers empirical insights into the mind of investors’ behaviour regarding mental accounting. There have been very few attempts to investigate individual variations in mental accounting and their causes. No previous study as per the knowledge of the authors has been conducted so far to empirically examine the impact of impulsivity on mental accounting in an emerging economy and the role of gender differences therein, and this study strives to fill this research gap.

How do the determinants of investment decisions get prioritized? Peeking into the minds of investors

PurposeInvestment decisions hold immense significance for investors and eventually affect their portfolio performance. Investors are advised to weigh the costs and benefits associated with every decision in order to make rational investment decisions. However, behavioral finance research reveals that investors' choices often stem from a blend of economic, psychological and sociological factors, leading to irrationality. Moreover, environmental, social and corporate governance (ESG) factors, aligned with behavioral finance hypotheses, also sway opinions and stock prices. Hence, this study aims to identify how individual equity investors prioritize key determinants of investment decisions in the Indian stock market.Design/methodology/approachThe current research gathered data from 391 individual equity investors through a structured questionnaire. Thereafter, a fuzzy analytic hierarchy process (F-AHP) was used to meet the purpose of the research.FindingsInformation availability, representative heuristics belonging to psychological factors and macroeconomic indicators falling under economic factors were discovered to be the three most prioritized criteria, whereas environmental issues within the realm of ESG factors, recommendations of brokers or investment consultants of sociological factors, and social issues belonging to ESG factors were found to be the least prioritized criteria, respectively.Research limitations/implicationsOnly active and experienced individual equity investors were surveyed in this study. Furthermore, with a sample size of 391 participants, the study was confined to individual equity investors in one nation, India.Practical implicationsThis research has implications for individual investors, institutional investors, market regulators, corporations, financial advisors, portfolio managers, policymakers and society as a whole.Originality/valueTo the best of the authors' knowledge, no real attempt has been made to comprehend how active and experienced individual investors prioritize critical determinants of investment decisions by taking economic, psychological, sociological and ESG factors collectively under consideration.

The Impact of Loss Ratio on the Financial Stability of Insurance Firms in Kenya

The insurance sector is an essential component for the continued expansion and prosperity of the economy. It is the responsibility of the insurance industry to secure the continued existence of enterprises, to disperse the risk that is caused by financial losses, and to work toward eradicating uncertainty in the minds of investors. Despite the important role of the insurance sector in the economy, firms operating in this sector have been having trouble maintaining their financial stability. The insurance sector has faced considerable volatility in profitability, resulting in some firms being placed under receivership or even going out of firm. The purpose of this study was to analyse the effect of loss ratio on financial stability of insurance firms in Kenya. The study was anchored on the Theory of Distress by Wreckers. The research was conducted using an explanatory research design, and the positivist philosophical approach was utilized. The target population for this study consisted of the 46 insurance firms that held IRA licenses and were operating during the time period under consideration (2014-2021). The census method was utilized for the research thesis, which focused on all 46 insurance firms in Kenya. The study used secondary data obtained from audited financial statements, which were publicly available on the websites of individual insurance firms. To gather panel data for the study, a secondary data collection template was employed. In order to draw conclusions from the data that was gathered, this study employed both descriptive and inferential statistical methods. The study employed a generalized method of moments modelling guided by static panel regression. The data processing was done using the Stata software. The research findings were presented through the use of tables and trend line graphs. The study adhered to research ethics guidelines. The findings of this study showed that loss ratio had a significant negative influence on the financial stability of Kenyan insurance companies (β = -0.5795373, p = 0.002 < .05).The study concludes that loss ratios and capital adequacy plays a significant role in the financial stability of insurance firms. A lower loss ratio indicates a more efficient underwriting process and risk management, contributing to better financial performance and stability. As a result, the study recommends that to enhance their financial stability, general insurers in Kenya should manage their loss ratio. It's also recommended that Kenya should adhere to the principles of the Solvency II framework. Keywords: Loss Ratio, Insurance Firms, Claims Management, Financial Stability, Kenya

Dynamic changes in US Financial Markets under the COVID-19 Pandemic

Covid-19 disrupted people’s lives and the world’s economic activities in major ways. The pandemic affected, businesses, companies, and investors in the stock market. This paper aims to how normalized Covid-19 affect the United States stock market by analyzing three major US stock markets: S&P500, NASDAQ, and DJIA. The aim was to examine the effect on stock market’s return and volatility. To analyze the impact of the pandemic, vector autoregression models (VAR) as well as the ARMA-GARCH-X model were used. Impulse response function graph from the VAR model revealed that the pandemic did increase or decrease the stock market returns of either of the indices. However, fluctuations in returns were shown to be higher during the early period but faded with time. The ARMA-GARCH-X model however reported that the pandemic only influenced the volatility of S&P500 returns only while the other two markets were not affected. Conclusion drawn from the study is that the pandemic influenced the stock markets in the early days but its influence tapered down due to normalization of the pandemic in the mind of investors. Government responses to the pandemic as well as the introduction of vaccines could also serve to raise investor’s confidence thus reducing the influence of the pandemic on the stock market.

Determinants of Qualified Investor Sentiment during the COVID-19 Pandemic in North America, Asia, and Europe

This work delineates the factors determining investor sentiment in specific regions during the pandemic and the influence of attitudes towards vaccination. The findings show that the reactions of knowledgeable investors in different regions to the economic effects of the pandemic were not uniform but depended on a variety of individual factors. Risk perception varied widely due to idiosyncrasies in specific countries and regions, the level of pandemic information, reaction to case reports and deaths, attitudes towards vaccination, lockdown compliance, and government measures to support businesses. These various elements combined to create different outlooks in the minds of investors that strongly influenced their investment strategies. For this investigation, we tested three estimation models: the classic robust standard error for time series regression, the new robust standard errors regression, and the Prais robust estimation. This study applied the lasso system of machine learning to select relevant explanatory variables. The novelty of our work resides in its analysis of the conduct of informed investors, using a reliable proxy, and the discussion of how government policies and different pandemic-related factors, specifically the vaccination status, affected investor sentiment in different regions. As for practical implications, an understanding of how the various economic factors related to the pandemic influenced the behavior of qualified investors in different regions can help regulators, government leaders, fund managers, and investors deal with a future virus outbreak.

Bank Liquidity Risk: Significance of Financial Disclosure and Governance Practice

The objective of the study is to show the remedial effect of bank liquidity risk in the marketplace by disseminating financial information and practicing corporate governance mechanisms. The link between financial disclosure, corporate governance, and banks' liquidity risk management in Bangladesh is examined in this paper. The study used panel data on 32 commercial banks from the 2008 to 2018 with 346 observations collected from published annual reports. Based on the preliminary diagnosis, the study chose the two-stage least squares (2SLS) regression method to minimize the errors arising from heteroskedasticity, autocorrelation, and endogeneity issues. The study found that adequate financial disclosure and corporate governance practices minimize bank liquidity risk to maintain a stable image in the minds of investors and withstand immense regulatory pressure. To allow banks to detect issues early, they must implement changes quickly and be more robust to crises, thus risk management efficacy and excellent corporate governance implementation are required. Moreover, banks are mainly concerned about liquidity risk as it directly affects the market's performance and stability. Liquidity crises can be eradicated by proper monitoring and providing information pertaining to risks to prudent investors in a reliable and transparent corporate culture.

Determinants of Trading Decision: An Empirical Examination

In the midst of increasing globalization, the past two decades have observed huge inflow of outside capital in the shape of direct and portfolio investment. The increase in the capital mobility is due to contact between the different economies across the globe. The growing liberalization in capital market leads to the growth of various financial products and services. The Indian stock market has become one of the established markets across the world due to reforms that took place in 1990 by the Indian government. These reforms have made the Indian stock market strong in its fundamentals which made India as a lucrative destination for investment. Some of the reforms were like formation of SEBI, screen-based trading system, development of major stock exchanges NSE and BSE, circuit breaker T+2 rolling system, development of credit rating agencies, dematerialization of securities, commodity option trading, single license system, investor protection, growing derivative market, The fast revolution in Indian stock market has increased transparency and trust in its functioning. With the robust stock market the trading decisions of the investors gained relevance. Over the past decade, the Indian capital market has witnessed numerous changes in the direction of developing the capital markets more robust. With the growing Indian economy larger inflow of funds have been fetched into the capital markets. The government is continuously working on investor’s education in order to increase retail participation in the Indian stock market. The habits of risk-averse middle class have been changing where these investors started participating in the Indian stock market. The Indian stock market is exposed to various fluctuations as the Indian stock market is cointegrated with other Asian stock markets consequently the changes that occur in those markets affect our stock market. When the SENSEX goes down it creates a pessimistic environment in the mind of investors. The investor’s portfolio is affected and strategies have to be formulated in rebalancing the portfolio. While making an investment, even a little sum can create an impressive reward over the long haul, particularly on the off chance that is done routinely. However, one has to ensure the amount which is contributed and where to contribute it. There is an uncommon development in the investment area regarding the volume and number of speculators in India over the previous decades because of deregulation of the Indian budgetary segment. The quantity of territorial stock trades in India has expanded. Value revelation through book building process has given a gigantic lift to the underlying open offers and further open offers. The investment situation of Indian money related market wears another look, with a mindboggling reaction from the Indian financial specialists as well as from outside institutional investor With the rising number of stocks in the Indian equity market the individual investors have gained momentum in an increasing stock market Investors while trading in different financial assets consider various factors which are broadly categorized as the psychological as well as economic factors. It is an explored fact that human beings are irrational and considering this fact has become imperative to investigate factors that influence the trading decision. In this research,` an attempt has been made to investigate various factors that affect the individual trading decision. The data has been collected from various stockbroking firms and from clients of those stockbroking firms their opinions’ were recorded by means of a questionnaire. Data collected through the structured questionnaire, 33 questions were prepared which was given to the 330 respondents on the basis of convenience sampling out of which 220 individuals filled questionnaire, the total of 200 questionnaires was included in the study after eliminating the incomplete questionnaire Various factors are being explored from the literature and then with the help of factor analysis some of the most influential factors have been explored. Factors like overconfidence, optimism, cognitive bias, herd behavior, advisory effect, and idealism are the factors which influenced the trading decision of the investors the most. Such kind of a study is contributing in the area of behavioral finance as a trading decision is an important aspect while investing in the stock market. And this kind of study would be helping and assisting financial advisors to strategies for their clients in making the right allocation and also the policy maker and market regulators to come up with better reforms for the Indian stock markets.

Human Resource Accounting and Quality of Financial Reporting of Quoted Oil and Gas Companies in Nigeria

Financial reporting is a veritable tool that provides information to all stakeholder’s for the purpose of decision making. The preparation and presentation of the report is done by the human asset. Building public confidence for capital market participants, transparency, and trust are very germane in any capital market. Poor earnings quality, opportunistic earnings and biased financial report portents great fears in the mind of investors and analysts alike in making rational investment decisions. The study investigated the effect of human resource accounting on quality of financial reporting (using earnings quality, accounting conservatism, earnings smoothness and persistence as proxies) of quoted oil and gas companies in Nigeria. The study adopted ex-post facto research design. The population of the study was 12 oil and gas companies in Nigeria. Purposive sampling technique was used and considered 12 oil and gas which had secondary data information that covered a period of 10 years from 2004 -2018. The null hypothesis (H0): Human Resource Accounting does not have significant effect on financial reporting quality in oil and gas companies in Nigeria The empirical findings of financial reporting quality revealed that the human asset provided the basis for these improvement in oil and gas companies with the results F(8.133)=65.13 (P – value=0.000); Adjusted R2=0.315 and F(5.102)=217.6 (P – Value=0.000); Adjusted R2=0.323. The study concluded that human resource accounting has significant effect on financial reporting quality of quoted oil and gas companies in Nigeria. The study recommended that the regulatory bodies should find ways of rewarding companies that comply with the regulatory guiding standards and comply with information disclosure for earnings quality assessment and sanction erring companies that conceal relevant and purposeful information from the stakeholders.

Measuring volatility linkage, clustering and sensitivity to external shocks in Nigerian stock index

Recent events in the global economy have further exposed the fear and uneasiness in the minds of investors around the world. The resort to protectionist policies by nations around the world as reaction to the attempt by US President Donald Trump to use higher tariffs to increase his country's share of global trade has made global investors seek safe havens. This paper measures stock market volatility and linkages among three stock markets. EGARCH and TGARCH models were employed in analysing univariate volatility in the indices, while bivariate GARCH (diagonal BEKK) was employed in measuring returns linkages. The result of the analysis shows that markets exhibit evidence of asymmetry and persistence in volatility; volatility from previous periods significantly affects current period and markets react with speed to news of volatility. In terms of portfolio diversification, NSE-IST provides better opportunity followed by NSE-JSE and then JSE-IST.

Investment in Pharma Stocks in BSE: A Performance Analysis

Many of the investors may feel a great opportunity to make profit in the stock market while many consider it too risky to invest. The opinion differs from person to person, investor to investor. The high level of volatility may lead to the substantial losses for many investors. There are many responsible factors. One needs to develop a bird's eye view over the stock market and analyse every factor with proper tools and techniques so that she/he may not go wrong in the investment decision. A detailed analysis may help the investors by reaching into a rational conclusion to optimise the gain or at least reducing the chance of losing money. The study deals with fundamental analysis to reach at a rational investment decision concentrating on Indian pharma stocks. It finally arrives at the optimum choice for investment by considering thirteen identified stocks of the Indian pharma sector based on six different parameters comparing the performances during last five years. This study is expected to reduce the ambiguity in the minds of investors regarding various facets of investment in the stock market.

The Impact of Macroeconomic Indicators on Indian Stock Prices: An Empirical Analysis

Abstract The purpose of the present study is to examine the long run and the short run relationship between stock price and a set of macroeconomic variables for Indian economy using annual data from 1979 to 2014. The long run relationship is examined by implementing the ARDL bounds testing approach to co-integration. VECM method is used to test the short and long run causality and variance decomposition is used to predict long run exogenous shocks of the variables. The results confirm a long run relationship among the variables. Evidence suggests that Economic growth, inflation and exchange rate influence stock prices positively. However, crude oil price influences the stock price negatively. This implies that the increase in oil price induces inflationary expectation in the mind of investors and hence stock prices are adversely affected. The VECM result indicates that short run and long run unidirectional causality running from economic growth and FDI to stock prices in India. The result of the variance decomposition shows that stock market development in India is mostly explained by its own shocks. The Government can take steps to control the crude oil price in India and Investors’ confidence has to be gained by boosting the economic growth of the economy through appropriate policy tools.

Corporate social responsibility, stock salience, and the asymmetric market impact of consumer sentiment news on Spanish firms

Purpose– The purpose of this paper is to identify whether the Spanish stock market experiences a negativity effect on the announcement of Spanish consumer sentiment information and if firms that are signatory to the UN Global Compact on corporate social responsibility are relatively more salient in the minds of investors.Design/methodology/approach– The authors use consumer sentiment announcements to show how the negativity effects on the Spanish stock market are significantly influenced by how salient the stock is in the minds of investors. If a firm’s stock exhibits negativity effects on the release of consumer sentiment information then this stock is salient to investors. If firms who are signatory to the UN Global Compact exhibit significant negativity effects, it could be concluded that these stocks are salient, particularly if firms that are not signatory to the Global Compact do not exhibit a similar negativity effect.Findings– The IBEX35 index experiences significant negativity effects upon the release of Spanish consumer sentiment announcements. This is similar to that reported in other countries, notably Australia and the USA. Using the constituent firms in the IBEX35 index, the authors find that those firms that are signatory to the UN Global Compact are significantly more likely to experience negativity effects upon the release of Spanish consumer sentiment information than if they are not signatory to the Global Compact. This indicates that firms that are part of the UN Global Compact are more salient to investors.Research limitations/implications– Available published Spanish data on consumer sentiment.Practical implications– Little is understood of the impact that consumer sentiment announcements have on stock prices. Studies in USA and Australia have identified significant negativity effects in stock markets when consumer sentiment information is released. This research has found that a psychological negativity bias occurs in firms that are salient to investors. Salience has been found to be important in asset pricing.Originality/value– This paper tries to find out which companies are more likely to sign the UN Global Compact. These companies are more sensitive to consumer sentiment, because they depend on the everyday decisions of the consumers. The more the companies depend on consumers, the more they care about them. And, when the consumer sentiment goes down, they are more affected by this sentiment. These firms are also more worried about the long term. They are not only thinking about the profits in the short term but also about maintaining the generation of profits in the long term.

Right to Fair Compensation and Transparency in Land Acquisition and Rehabilitation & Resettlement Amendment Ordinance No. 9 of 2014 - A Critical Review.

Government of India came up with Gazette Notification on 31st December 2014 amending the large awaited “Right to Fair Compensation and Transparency in Land Acquisition and Rehabilitation & Resettlement Act” through an ordinance on the ground that Parliament is not in session and the President is satisfied with circumstances existed, which referred it necessary for him to take immediate action. It was strongly objected by Congress and its allies. But the fact is that the stalemate that has occurred due to induction of new Act w.e.f 1st January 2014 will now start moving with positive direction. The ordinance will create confidence in the minds of the investors as the consent clauses has been diluted and investment atmosphere crated which will facilitate for industrial growth of the country. Even if the new NDA government in India has made a slogan of “Make in India” and has made several round of meeting with investors to attract them for investment in India the Land Acquisition Act 2013 was one of the biggest bottlenecks for the investors to think investing in large scale in India. Other than this the 2nd tailbacks is mining lease. Uncertainty in mining lease and uncertainty in land acquisition will certainly create doubt in the mind of investors, who will probably think thrice before investing in India. This article is intended to make lucid analysis of various provisions of Ordinance-9, 2014 with an intention to make it understandable to the common man and view of the investor who might be searching and surfing with a good intention to participate in make in India programme of the new government.

Stock Market Asymmetric Volatility and Macroeconomic Dynamics in Central and Eastern Europe

The risk on financial markets drives the performance of stock market investments in a national capital market, hence its interpretation in the minds of investors has a large influence on the dynamics of asset prices. The academic inclusion of fear on the financial markets is realized by the use of the concept of utility in a field that became mostly empirical in the development of modern finance. The creation of models on financial markets takes into account the so-called downside volatility reaction, as a stylized fact defined as the negative correlation between the return of a financial asset and the volatility of that asset. Our paper aims to measure this asymmetric volatility effect on the dynamics of Eastern European stock markets by using a wide set of GARCH models with coefficients for the effect of asymmetry and to detect its connection with the development of the macroeconomic environment. The objective is to reflect the differences between this connection and similar ones specific to developed economies.

Uncovering Bias in Entrepreneurship: Testing Gender Stereotype Content in Investment Decisions

Recent research demonstrates that when firms headed by female CEOs seek to launch new firms, or prepare their firms to go public, they face a significant disadvantage in their ability to successfully acquire growth capital. While this research does demonstrate the existence of an empirically significant gender- based capital gap, there has been little investigation of the underlying psychological processes at play in the minds of investors. We draw on the stereotype content model (Fisk et al., 2002) to suggest that an investor's psychological willingness to invest in an entrepreneur is contingent upon the entrepreneur's perceived trustworthiness and competence. Moreover, we investigate how perceptions of the entrepreneur's trustworthiness or competence can be influenced by the investor's own biases (i.e., the strength of the investor's own gender stereotypes). We develop a multiple-mediation model and test our hypotheses using both archival and experimental crowdfunding samples. Our results support previo...

Critical Review of SEBI in the Backdrop of Financial Scams

In the post-reform period of the last two decades, one of the more important innovations facilitating a more rapid pace of economic development has been the creation of regulators. These are statutory entities that were placed outside of the machinery of the government, but given powers to regulate and supervise a sector. One reason for the government to create such entities was to have expert bodies to regulate sectors where they faced an increasing complexity of economic activities. Here, the regulator would have domain knowledge to deal with such complex issues.The first statutory regulatory body that the government of India set up post the reforms of 1991 was the Securities and Exchanges Board of India (SEBI). As a regulator for the securities markets, SEBI was given the powers to create subordinate legislation and to investigate wrong-doing and impose relevant penalties. Since the empowerment of the Securities and Exchange Board of India (SEBI) through an Act of Parliament in 1992, SEBI has come up with a number of initiatives aimed at regulating and developing the Indian securities market and improving its safety and efficiency. This includes public issuance of securities, the secondary market and registration for brokers. The purpose of SEBI is three fold: (a) protection of the investor, (b) prudential regulation of securities markets intermediaries and (c) development of the markets. Recent repeated misconduct in the stock market have led to an image of disarray, lack of transparency and fraud dominating the financial sector. Consequent collapses in the stock market have resulted in such a loss of confidence in the minds of investors, domestic and foreign. Also in the light of recent governance scams there might be a need to restructure its policies and implementation process. Gaps in legislation needs to be filled and therefore active part must be taken by the parliament as well to make sure illegal activities like that insider trading, governance scandals like that of Satyam no longer poses a threat to the investors in the market.

Communicating a Vision for Image through CSR in Oil Industry

Shifting contours of the Oil Industry: The Oil Industry in India is mixture of public sector and private sector players. The prominent ones among these companies are ONGC, GAIL, IOCL, HPCL, BPCL, RIL & Essar. All these companies are comparable with each other in terms of turnover, profits and the importance they have in ensuring the energy security of the nation. In fact, RIL has the biggest presence in the minds of investors, business community and institutional stakeholders. The company also has a larger than life image often associated with the entrepreneurial spirit of Dhirubhai Ambani and the somewhat grudging admiration for the present benefactor of that effort, Mukesh Ambani. But, for the retail customer, the millions of homemakers and the large consumer of bulk fuels the three companies IOCL, BPCL & HPCL have a dominant presence too. Collectively known as the Oil Marketing Companies these three have a triopoly of the downstream marketing segment of the industry. This segment is also perhaps the most affected by the policies of the Government. Can the Oil industry in India really use CSR more effectively to project a positive and favourable image of themselves?

Hedge funds and unconscious fantasy

PurposeThis paper aims to help explain the rapid growth in aggregate hedge fund assets under management until June 2008 followed by their subsequent dramatic collapse in terms of the conflicting emotions such investment vehicles evoke, and, from this, to consider the implications of the excitement‐generating potential underlying all financial innovations.Design/methodology/approachWithin the framework of critical discourse analysis, this paper explores how hedge funds were represented in the financial press, manager interviews, investor comments, and Congress hearings, before and after the burst of the hedge fund “bubble”. The authors then draw on the psychodynamic literature, and frame the human unconscious need for excitement in this discourse.FindingsThe paper finds evidence demonstrating how hedge funds were transformed in the minds of investors into objects of fascination and desire with their unconscious representation dominating their original investment purpose. Based on a psychoanalytic interpretation of financial markets, and dot.com mania in particular, the authors show how hedge fund investors' search for “phantastic objects” and the associated excitement of being invested in them can become dominant, resulting in risk being ignored.Research limitations/implicationsThe authors take an interdisciplinary perspective drawing on the insights of the psychoanalytic understanding of unconscious fantasies, needs and drives as these relate to investment activity.Practical implicationsPublic policy implications are that stricter ethical guidelines for the hedge fund industry need to be introduced, and suitability regulations that go beyond mandatory transparent disclosure of investment risks are required.Originality/valueThe paper is one of very few studies concerning investors' emotional attachment to financial innovations, and builds on the emerging field of emotional finance. The conclusions and implications discussed in the paper go beyond any single financial market or product.

Internal control reporting regulation: a law and economics perspective

PurposeThe purpose of this paper is to analyze the efficiency of the internal control reporting (ICR) requirements imposed by Sections 302 and 404 of the Sarbanes‐Oxley Act of 2002 (SOX). The lessons learned are then applied to the current financial crisis.Design/methodology/approachThe Coase Theorem is applied to the events leading up to the collapse of Enron and the enactment of SOX. The paper then analyzes the efficacy of the various examples of ICR regulation, both pre‐ and post‐SOX, noting the ways in which they effectively mitigate transaction costs and the ways in which they over‐regulate.FindingsUS investors continue to invest in foreign markets despite the fact that those markets maintain less demanding ICR requirements than those required by Section 404. Moreover, investors do not respond negatively to Section 404 disclosures. The research demonstrates that Section 404 does not provide useful information in the minds of investors. Considering Section 404's ineffectiveness and the burdensome costs it imposes on reporting companies, it is clear that Section 404 is an example of over‐regulation and should be repealed.Practical implicationsThe transaction costs that caused the collapse of Enron and the enactment of SOX bear strong similarities to those causing the more recent subprime mortgage crisis. The lessons learned from the enactment of SOX Section 404 are directly applicable to the current financial crisis and should be noted moving forward.Originality/valueBy utilizing a law and economics perspective, the paper more clearly demonstrates how Section 404 is an example of over‐regulation and draws links to the current economic crisis.

Hedge Funds and Unconscious Fantasy

We help to explain the rapid growth in aggregate hedge fund assets under management until June 2008 followed by their collapse in terms of the conflicting emotions such investment vehicles evoke. Specifically, we describe how some high-profile hedge funds were transformed in the minds of investors, into objects of fascination and desire, with their unconscious representation dominating their original investment purpose as providers of investment returns less correlated with more traditional asset classes. Based on a psychoanalytic interpretation of financial markets, and dot.com mania in particular, we show how hedge fund investors’ search for “phantastic objects” and the associated excitement of being invested in them can become dominant, resulting in risk being ignored.