1. Can Bounded Rationality Be Identified in the Australian Stock Market?
Roberta Powell
PhD Candidate
University of Queensland
Queensland University of Technology

2. Overview Introduction Bounded Rationality
Empirical Measure of Bounded Rationality
Sample
Model
Econometric Approach
Results
Conclusion
Questions

3. Introduction
Identification of Bounded Rationality in Australian Stock Market
Companies from S&P/ASX 200 classified as optimizers or satisficers with proxy
Adapted Noise Trader Model
Cohort Dummy Variables
TSCS and OLS/PCSE

4. Bounded Rationality Neoclassical Economics
Optimizers
Herbert Simon – Bounded Rationality
Satisficers
Aspiration levels
Resource scarcity
Other Research

5. Empirical Measure of Bounded Rationality
SG&A to represent deliberation cost
SG&A/MV ratio
Quartiles
Optimizers and satisficers
Gainers and losers

6. Sample S&P/ASX 200 Index High capitalisation 139 Australian companies
All industry sectors represented
SG&A dataset for Australia

7. Model Adapted Noise Trader Model
Inclusion of optimisers, satisficers, gainers and losers
Noise trading as demand side bounded rationality
SG&A expenditure as supply side bounded rationality

8. Model Equations Δpi,t = αp + t + β.volresi,t + εp,i,t
dyi,t = αdy + t + γ.dyi,t-1 + εdy,i,t
xri,t = αxr + t + ζ1xri,t-1 + ζ2voli,t-1 + εxr,i,t
where εt ~ N(0, σ2n) i = company t = temporal period

9. Econometric Approach TSCS data Cohort Dummy variables
OLS/Panel Corrected Standard Errors
Serial correlation in residuals – LDV
PCSE
Wald Tests
Specification Tests

10. Results Significance of Cohort Dummies Across Market
Significance of Cohort Dummies Across Industry Sectors

11. Conclusion
Herbert Simon questioned the neoclassical model - Theory of Bounded Rationality
Insight into the Australian stock market
SG&A and Adapted Noise Trader Model
TSCS single coefficient cohort dummy variable estimations using OLS/PCSE
Some evidence for optimisers and satisficers in the Australian stock market

12. Questions