Representativeness Heuristic, Investor Sentiment and Overreaction to Accounting Earnings: The Case of the Tunisian Stock Market

The representativeness heuristic is a psychological bias which means that, under uncertainty, investors are prone to believe that a history of a remarkable performance of a given firm is “representative” of a general performance that the firm will continue to generate into the future. Investors subjects to this heuristic overreact, thus, to salient and similar information about firms past performance such as similar consecutive earnings surprises. I have examined this relationship on the Tunisian stock market using accounting and stock market data over the period 1990-2010. Weak evidence has been found concerning this relationship. The results show a partial association between past earnings surprises and future abnormal returns explained by negative earnings surprises autocorrelation.