Download or read book Cumulative Prospect Theory Myopic Loss Aversion and Momentum Crashes written by Paul Docherty and published by . This book was released on 2019 with total page 35 pages. Available in PDF, EPUB and Kindle. Book excerpt: Momentum strategies generate significant positive returns over long investment horizons; however these strategies experience infrequent periods of large negative returns. These periods are known as 'momentum crashes'. We demonstrate that the probability of a momentum crash is time-varying, increasing following periods of high market return dispersion, a proxy for a change in the market state. Under cumulative prospect theory, investors overweight the probability of a momentum crash when estimating their value function, discounting the current price of "winners" relative to "losers" resulting in positive expected future returns for the momentum strategy. Consistent with this theory, we show that momentum returns are substantially lower and volatility is higher in regimes where the probability of a momentum crash is high. Although momentum crashes are predictable they may not be exploited by institutional investors. Therefore, we argue that the negative (positive) skewness of the return distribution of winner (loser) portfolios is priced and may partly explain the momentum premium.

Download or read book Cumulative Prospect Theory and Momentum Crashes written by Paul Docherty and published by . This book was released on 2014 with total page 21 pages. Available in PDF, EPUB and Kindle. Book excerpt: We provide robust evidence of momentum crashes within the Asian region, which occurred following the Asian financial crisis and the global financial crisis. The probability of a momentum crash is time-varying; it increases after periods of low market returns and high cross-sectional return dispersion when the beta of the zero-investment momentum portfolio becomes negative. Under cumulative prospect theory, investors overweight the probability of a momentum crash when estimating their value function, resulting in the price of “winners” decreasing and future average returns increasing. Consistent with this theory, we show that momentum returns in Asia are substantially lower following periods where the probability of a momentum crash is higher. Therefore, we argue that the negative (positive) skewness of winner (loser) portfolios is priced and may explain the momentum premium.

Download or read book Myopic Loss Aversion Revisited written by Pavlo R. Blavatskyy and published by . This book was released on 2007 with total page 21 pages. Available in PDF, EPUB and Kindle. Book excerpt: When the performance of a risky asset is frequently assessed, the probability of detecting a loss is high, which averts the loss averse investors. This effect is known as myopic loss aversion (MLA). This paper reexamines several recent experimental studies documenting the existence of MLA. A closer look at the experimental data reveals that the effect of MLA is largely neutralized by the overweighting of small probabilities and the underweighting of moderate and high probabilities. Remarkably, the two effects exactly balance each other out for conventional parameterizations of cumulative prospect theory. MLA alone cannot explain the observed investment decisions.

Download or read book Handbook of the Fundamentals of Financial Decision Making written by Leonard C. MacLean and published by World Scientific. This book was released on 2013 with total page 941 pages. Available in PDF, EPUB and Kindle. Book excerpt: This handbook in two parts covers key topics of the theory of financial decision making. Some of the papers discuss real applications or case studies as well. There are a number of new papers that have never been published before especially in Part II.Part I is concerned with Decision Making Under Uncertainty. This includes subsections on Arbitrage, Utility Theory, Risk Aversion and Static Portfolio Theory, and Stochastic Dominance. Part II is concerned with Dynamic Modeling that is the transition for static decision making to multiperiod decision making. The analysis starts with Risk Measures and then discusses Dynamic Portfolio Theory, Tactical Asset Allocation and Asset-Liability Management Using Utility and Goal Based Consumption-Investment Decision Models.A comprehensive set of problems both computational and review and mind expanding with many unsolved problems are in an accompanying problems book. The handbook plus the book of problems form a very strong set of materials for PhD and Masters courses both as the main or as supplementary text in finance theory, financial decision making and portfolio theory. For researchers, it is a valuable resource being an up to date treatment of topics in the classic books on these topics by Johnathan Ingersoll in 1988, and William Ziemba and Raymond Vickson in 1975 (updated 2 nd edition published in 2006).

Download or read book Investor Behavior written by H. Kent Baker and published by John Wiley & Sons. This book was released on 2014-02-10 with total page 645 pages. Available in PDF, EPUB and Kindle. Book excerpt: WINNER, Business: Personal Finance/Investing, 2015 USA Best Book Awards FINALIST, Business: Reference, 2015 USA Best Book Awards Investor Behavior provides readers with a comprehensive understanding and the latest research in the area of behavioral finance and investor decision making. Blending contributions from noted academics and experienced practitioners, this 30-chapter book will provide investment professionals with insights on how to understand and manage client behavior; a framework for interpreting financial market activity; and an in-depth understanding of this important new field of investment research. The book should also be of interest to academics, investors, and students. The book will cover the major principles of investor psychology, including heuristics, bounded rationality, regret theory, mental accounting, framing, prospect theory, and loss aversion. Specific sections of the book will delve into the role of personality traits, financial therapy, retirement planning, financial coaching, and emotions in investment decisions. Other topics covered include risk perception and tolerance, asset allocation decisions under inertia and inattention bias; evidenced based financial planning, motivation and satisfaction, behavioral investment management, and neurofinance. Contributions will delve into the behavioral underpinnings of various trading and investment topics including trader psychology, stock momentum, earnings surprises, and anomalies. The final chapters of the book examine new research on socially responsible investing, mutual funds, and real estate investing from a behavioral perspective. Empirical evidence and current literature about each type of investment issue are featured. Cited research studies are presented in a straightforward manner focusing on the comprehension of study findings, rather than on the details of mathematical frameworks.

Download or read book Handbook of the Economics of Finance written by G. Constantinides and published by Elsevier. This book was released on 2003-11-04 with total page 698 pages. Available in PDF, EPUB and Kindle. Book excerpt: Arbitrage, State Prices and Portfolio Theory / Philip h. Dybvig and Stephen a. Ross / - Intertemporal Asset Pricing Theory / Darrell Duffle / - Tests of Multifactor Pricing Models, Volatility Bounds and Portfolio Performance / Wayne E. Ferson / - Consumption-Based Asset Pricing / John y Campbell / - The Equity Premium in Retrospect / Rainish Mehra and Edward c. Prescott / - Anomalies and Market Efficiency / William Schwert / - Are Financial Assets Priced Locally or Globally? / G. Andrew Karolyi and Rene M. Stuli / - Microstructure and Asset Pricing / David Easley and Maureen O'hara / - A Survey of Behavioral Finance / Nicholas Barberis and Richard Thaler / - Derivatives / Robert E. Whaley / - Fixed-Income Pricing / Qiang Dai and Kenneth J. Singleton.

Download or read book Behavioral Corporate Finance written by Hersh Shefrin and published by College Ie Overruns. This book was released on 2017-04-16 with total page 300 pages. Available in PDF, EPUB and Kindle. Book excerpt:

Download or read book Prospect Theory written by Peter P. Wakker and published by Cambridge University Press. This book was released on 2010-07-22 with total page 519 pages. Available in PDF, EPUB and Kindle. Book excerpt: Prospect Theory: For Risk and Ambiguity, provides a comprehensive and accessible textbook treatment of the way decisions are made both when we have the statistical probabilities associated with uncertain future events (risk) and when we lack them (ambiguity). The book presents models, primarily prospect theory, that are both tractable and psychologically realistic. A method of presentation is chosen that makes the empirical meaning of each theoretical model completely transparent. Prospect theory has many applications in a wide variety of disciplines. The material in the book has been carefully organized to allow readers to select pathways through the book relevant to their own interests. With numerous exercises and worked examples, the book is ideally suited to the needs of students taking courses in decision theory in economics, mathematics, finance, psychology, management science, health, computer science, Bayesian statistics, and engineering.

Download or read book Handbook of Behavioral Economics Foundations and Applications 1 written by and published by Elsevier. This book was released on 2018-09-27 with total page 749 pages. Available in PDF, EPUB and Kindle. Book excerpt: Handbook of Behavioral Economics: Foundations and Applications presents the concepts and tools of behavioral economics. Its authors are all economists who share a belief that the objective of behavioral economics is to enrich, rather than to destroy or replace, standard economics. They provide authoritative perspectives on the value to economic inquiry of insights gained from psychology. Specific chapters in this first volume cover reference-dependent preferences, asset markets, household finance, corporate finance, public economics, industrial organization, and structural behavioural economics. This Handbook provides authoritative summaries by experts in respective subfields regarding where behavioral economics has been; what it has so far accomplished; and its promise for the future. This taking-stock is just what Behavioral Economics needs at this stage of its so-far successful career. Helps academic and non-academic economists understand recent, rapid changes in theoretical and empirical advances within behavioral economics Designed for economists already convinced of the benefits of behavioral economics and mainstream economists who feel threatened by new developments in behavioral economics Written for those who wish to become quickly acquainted with behavioral economics

Download or read book Behavioralizing Finance written by Hersh Shefrin and published by Now Publishers Inc. This book was released on 2010 with total page 196 pages. Available in PDF, EPUB and Kindle. Book excerpt: Behavioralizing Finance provides a structured approach to behavioral finance in respect to underlying psychological concepts, formal framework, testable hypotheses, and empirical findings.

Download or read book Encyclopedia of Finance written by Cheng-Few Lee and published by Springer Science & Business Media. This book was released on 2006-07-27 with total page 861 pages. Available in PDF, EPUB and Kindle. Book excerpt: This is a major new reference work covering all aspects of finance. Coverage includes finance (financial management, security analysis, portfolio management, financial markets and instruments, insurance, real estate, options and futures, international finance) and statistical applications in finance (applications in portfolio analysis, option pricing models and financial research). The project is designed to attract both an academic and professional market. It also has an international approach to ensure its maximum appeal. The Editors' wish is that the readers will find the encyclopedia to be an invaluable resource.

Download or read book Behavioral Portfolio Management written by C. Thomas Howard and published by Harriman House Limited. This book was released on 2014-03-17 with total page 329 pages. Available in PDF, EPUB and Kindle. Book excerpt: The investment industry is on the cusp of a major shift, from Modern Portfolio Theory (MPT) to Behavioral Finance, with Behavioral Portfolio Management (BMP) the next step in this transition. BPM focuses on how to harness the price distortions that are driven by emotional crowds and use this to create superior portfolios. Once markets and investing are viewed through the lens of behavior, and portfolios are constructed on this basis, investable opportunities become readily apparent. Mastering your emotions is critical to the process and the insights provided by Tom Howard put investors on the path to achieving this. Forty years of Behavioral Science research presents a clear picture of how individuals make decisions; there are few signs of rationality. Indeed, emotional investors sabotage their own efforts in building long-horizon wealth. When this is combined with the misconception that active management is unable to generate superior returns, the typical emotional investor leaves hundreds of thousands, if not millions, of dollars on the table during their investment lifetimes. Howard moves on to show how industry practice, with its use of the style grid, standard deviation, correlation, maximum drawdown and the Sharpe ratio, has entrenched emotion within investing. The result is that investors construct underperforming, bubble-wrapped portfolios. So if an investor masters their own emotions, they still must challenge the emotionally-based conventional wisdom pervasive throughout the industry. Tom Howard explains how to do this. Attention is then given to measureable and persistent behavioral factors. These provide investors with a new source of information that has the potential to transform how they think about portfolio management and dramatically improve performance. Behavioral factors can be used to select the best stocks, the best active managers, and the best markets in which to invest. Once the transition to behavioral finance is made, the emotional measures of MPT will quickly be forgotten and replaced with rational concepts that allow investors to successfully build long-horizon wealth. If you take portfolio construction seriously, it is essential that you make the next step forward towards Behavioral Portfolio Management.

Download or read book Handbook of Exchange Rates written by Jessica James and published by John Wiley & Sons. This book was released on 2012-05-29 with total page 674 pages. Available in PDF, EPUB and Kindle. Book excerpt: Praise for Handbook of Exchange Rates “This book is remarkable. I expect it to become the anchor reference for people working in the foreign exchange field.” —Richard K. Lyons, Dean and Professor of Finance, Haas School of Business, University of California Berkeley “It is quite easily the most wide ranging treaty of expertise on the forex market I have ever come across. I will be keeping a copy close to my fingertips.” —Jim O’Neill, Chairman, Goldman Sachs Asset Management How should we evaluate the forecasting power of models? What are appropriate loss functions for major market participants? Is the exchange rate the only means of adjustment? Handbook of Exchange Rates answers these questions and many more, equipping readers with the relevant concepts and policies for working in today’s international economic climate. Featuring contributions written by leading specialists from the global financial arena, this handbook provides a collection of original ideas on foreign exchange (FX) rates in four succinct sections: • Overview introduces the history of the FX market and exchange rate regimes, discussing key instruments in the trading environment as well as macro and micro approaches to FX determination. • Exchange Rate Models and Methods focuses on forecasting exchange rates, featuring methodological contributions on the statistical methods for evaluating forecast performance, parity relationships, fair value models, and flow–based models. • FX Markets and Products outlines active currency management, currency hedging, hedge accounting; high frequency and algorithmic trading in FX; and FX strategy-based products. • FX Markets and Policy explores the current policies in place in global markets and presents a framework for analyzing financial crises. Throughout the book, topics are explored in-depth alongside their founding principles. Each chapter uses real-world examples from the financial industry and concludes with a summary that outlines key points and concepts. Handbook of Exchange Rates is an essential reference for fund managers and investors as well as practitioners and researchers working in finance, banking, business, and econometrics. The book also serves as a valuable supplement for courses on economics, business, and international finance at the upper-undergraduate and graduate levels.

Download or read book Efficiency and Anomalies in Stock Markets written by Wing-Keung Wong and published by Mdpi AG. This book was released on 2022-02-17 with total page 232 pages. Available in PDF, EPUB and Kindle. Book excerpt: The Efficient Market Hypothesis believes that it is impossible for an investor to outperform the market because all available information is already built into stock prices. However, some anomalies could persist in stock markets while some other anomalies could appear, disappear and re-appear again without any warning. A Special Issue on "Efficiency and Anomalies in Stock Markets" will be devoted to advancements in the theoretical development of market efficiency and anomaly in the Stock Market, as well as applications in Stock Market efficiency and anomalies.

Download or read book Financial Economics written by Thorsten Hens and published by Springer Science & Business Media. This book was released on 2010-07-01 with total page 377 pages. Available in PDF, EPUB and Kindle. Book excerpt: Financial economics is a fascinating topic where ideas from economics, mathematics and, most recently, psychology are combined to understand financial markets. This book gives a concise introduction into this field and includes for the first time recent results from behavioral finance that help to understand many puzzles in traditional finance. The book is tailor made for master and PhD students and includes tests and exercises that enable the students to keep track of their progress. Parts of the book can also be used on a bachelor level. Researchers will find it particularly useful as a source for recent results in behavioral finance and decision theory.

Download or read book Emerging Stock Markets written by Christopher Barry and published by Wiley. This book was released on 2000-04-14 with total page 126 pages. Available in PDF, EPUB and Kindle. Book excerpt: Emerging Stock Markets: Risk, Return, and Performance is a compendium of historical data currently available about the performance of securities in emerging markets. As a result, it will be an invaluable aid to the investor or investment manager trying to make informed decisions about investing in emerging market assets. The authors provide monthly stock return data for more than two dozen countries in the Emerging Markets Data Base maintained by the International Finance Corporation. Without such data, analysis of this fascinating asset class has been frustrated.

Download or read book Price Based Investment Strategies written by Adam Zaremba and published by Springer. This book was released on 2018-07-25 with total page 325 pages. Available in PDF, EPUB and Kindle. Book excerpt: This compelling book examines the price-based revolution in investing, showing how research over recent decades has reinvented technical analysis. The authors discuss the major groups of price-based strategies, considering their theoretical motivation, individual and combined implementation, and back-tested results when applied to investment across country stock markets. Containing a comprehensive sample of performance data, taken from 24 major developed markets around the world and ranging over the last 25 years, the authors construct practical portfolios and display their performance—ensuring the book is not only academically rigorous, but practically applicable too. This is a highly useful volume that will be of relevance to researchers and students working in the field of price-based investing, as well as individual investors, fund pickers, market analysts, fund managers, pension fund consultants, hedge fund portfolio managers, endowment chief investment officers, futures traders, and family office investors.