Influence on Market Behavior
Anomalies are identified by persistent abnormal returns that differ from zero and are predictable in direction. Momentum Effect A pattern …
behavioral finance
Committee Decision Making Implications
Many investment decisions are made in a group setting (e.g., stock recommendations by research committees, analysts working in a team …
Analyst Forecasting Implications
Studies have shown that experts in many fields persistently make forecasting errors arising from their behavioral biases. Investment analysts are …
Portfolio Construction Implication
Behavioral biases may affect how investors construct portfolios from the securities available to them. One way to consider this issue …
Adviser-Client Relationship Implications
The success of the typical client/adviser relationship can be measured in four areas, and each one is enhanced by incorporating …
Uses and Limitations of Classifying Investors
In recent decades, financial service professionals and researchers have been attempting to classify investors by their psychographic characteristics—in other words, …
Investment Policy and Asset Allocation
Behavioral biases can and should be accounted for by investors and their advisers in the investment policy development and asset …
Emotional Biases
Loss-aversion bias arises from feeling more pain from a loss than pleasure from an equal gain. Kahneman and Tversky focused on the …
Cognitive Errors
Cognitive errors are due primarily to faulty reasoning and could arise from a lack of understanding proper statistical analysis techniques, information …
Market Behavior and Portfolio Construction
Traditional Perspectives on Market Behavior and Portfolio Construction Much of modern portfolio theory is premised on the efficient market hypothesis (EMH). The …