Irrational Exuberance, Overconfidence and Short-Termism: Knowledge-to-Action Asymmetry in Shipping Asset Management

Abstract

The aim of this paper is to investigate the irrational investor phenomenon and the disconnection of information, knowledge and practice. A growing attention is allocated for inconsistencies in neo-classical economic theory. Among the variety of debates, irrationality is the major discussion in the behavioural economics. Duru1 indicated the market anomalies and the particulars of the impatient capital drawbacks in the dry cargo shipping business. This paper presents a number of theoretical and empirical evidences for the irrational exuberance phenomenon and discusses the asset bubbles from the statistical significance. The empirical work is designed to investigate the asymmetry between orders and the freight market. In the last century, dry cargo freight market indicated similar business cycles including expansion, peak, downturn and recession. Although the business cycle framework is frequently discussed and its significance is cited by many scholars, there is an existing gap between the known facts and the business practice. The possible reasons of such anomalies are investigated in the context of behavioural economics and cognitive bias. Which factors distort the rational expectations and how this phenomenon appears in the business practice of shipping business are the key discussions of this paper.

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