Download or read book Do Individual Behavioral Biases Affect Financial Markets and the Macroeconomy written by Harjoat Singh Bhamra and published by . This book was released on 2017 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt: A common criticism of behavioral economics is that it has not shown that the psychological biases of individual investors lead to aggregate long-run effects on both asset prices and macroeconomic quantities. Our objective is to address this criticism by providing a simple example of a production economy where individual portfolio biases cancel when summed across investors, but still have an effect on aggregate quantities that does not vanish in the long-run. Specifically, we solve in closed form a model of a stochastic general-equilibrium production economy with a large number of heterogeneous firms and investors. Investors in our model are averse to ambiguity and so hold portfolios biased toward familiar assets. We specify this bias to be unsystematic so it cancels out when aggregated across investors. However, because of holding underdiversified portfolios, investors bear more risk than necessary, which distorts the consumption of all investors in the same direction. Hence, distortions in consumption do not cancel out in the aggregate and therefore increase the price of risk and distort aggregate investment and growth. The increased risk from holding biased portfolios, which increases the demand for the risk-free asset, leading to a higher equity risk premium and a lower risk-free rate that match the values observed empirically. Furthermore, all investors survive in the long-run, and so the effects of their biases never vanish. Our analysis illustrates that idiosyncratic behavioral biases can have long-run distortionary effects on both financial markets and the macroeconomy.
Download or read book Do Individual Behavioural Biases Affect Financial Markets and the Macroeconomy written by Harjoat Singh Bhamra and published by . This book was released on 2017 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt:
Download or read book Do Behavioral Biases Adversely Affect the Macro economy written by George M. Korniotis and published by . This book was released on 2008 with total page 68 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Download or read book Behavioral Finance and Asset Prices written by David Bourghelle and published by Springer Nature. This book was released on 2023-04-05 with total page 228 pages. Available in PDF, EPUB and Kindle. Book excerpt: In recent decades, the financial markets have experienced various crises, shocks and disruptive events, driving high levels of volatility. This volatility is too strong to be fully justified simply by changes in fundamentals. This volume discusses these highly relevant issues with special focus on asset pricing and behavioral finance. Financial price assets of the 2020s appear to be driven by various attractors in addition to fundamentals, and there is no doubt that investor emotions, market sentiment, the news, and external factors such as uncertainty all play a key role. This has been clearly observed in recent years, especially during the ongoing coronavirus pandemic that has changed the common perception of the way financial markets work.
Download or read book Do Behavioral Biases Adversely Affect the Macro Economy written by George M. Korniotis and published by . This book was released on 2010 with total page 72 pages. Available in PDF, EPUB and Kindle. Book excerpt: We investigate whether the adverse effects of investors' behavioral biases extend beyond the domain of financial markets to the broad macro-economy. Focusing on the income risk-sharing role of financial markets, we find that risk-sharing is higher (more than double) in U.S. states where investors are more sophisticated and exhibit weaker behavioral biases. The potential for risk-sharing varies geographically but states with better risk-sharing opportunities are able to achieve higher levels of risk sharing only when investors in those states are more sophisticated. Collectively, these results indicate that investors' aggregate behavioral biases and their lack of financial sophistication adversely affect the local macroeconomy.
Download or read book Behavioral Finance Where Do Investors Biases Come From written by Itzhak Venezia and published by World Scientific. This book was released on 2016-10-27 with total page 395 pages. Available in PDF, EPUB and Kindle. Book excerpt: This unique volume presents new original research exploring factors that lead to investors behavioral biases. It discusses how features such as professionalism, sophistication, gender, media, and culture influence investors' decision-making in general, and in particular, how they generate (or limit) behavioral and cognitive biases. The effects of these factors on capital markets are also discussed. The book is based on the discussions and presentations at the First Israel Behavioral Finance Conference, which took place in Tel Aviv in May 2015. It examines in greater detail some of the key issues discussed at the conference.This is an innovative book in behavioral finance: it is the first to present an extensive collection of papers which discuss a comprehensive array of factors that influence or define investor character and analyzes these factors' effects on financial markets. The book is useful for readers interested in understanding the factors that influence investors' profiles and thus their behavioral biases. The book will be of great interest to researchers and students seeking a reference book which contains timely research on these areas of behavioral finance.
Download or read book Behavioral Finance written by H. Kent Baker and published by Oxford University Press. This book was released on 2019-02-01 with total page 256 pages. Available in PDF, EPUB and Kindle. Book excerpt: People tend to be penny wise and pound foolish and cry over spilt milk, even though we are taught to do neither. Focusing on the present at the expense of the future and basing decisions on lost value are two mistakes common to decision-making that are particularly costly in the world of finance. Behavioral Finance: What Everyone Needs to KnowR provides an overview of common shortcuts and mistakes people make in managing their finances. It covers the common cognitive biases or errors that occur when people are collecting, processing, and interpreting information. These include emotional biases and the influence of social factors, from culture to the behavior of one's peers. These effects vary during one's life, reflecting differences in due to age, experience, and gender. Among the questions to be addressed are: How did the financial crisis of 2007-2008 spur understanding human behavior? What are market anomalies and how do they relate to behavioral biases? What role does overconfidence play in financial decision- making? And how does getting older affect risk tolerance?
Download or read book Behavioral Finance written by Edwin T. Burton and published by John Wiley & Sons. This book was released on 2013-03-18 with total page 261 pages. Available in PDF, EPUB and Kindle. Book excerpt: An in-depth look into the various aspects of behavioral finance Behavioral finance applies systematic analysis to ideas that have long floated around the world of trading and investing. Yet it is important to realize that we are still at a very early stage of research into this discipline and have much to learn. That is why Edwin Burton has written Behavioral Finance: Understanding the Social, Cognitive, and Economic Debates. Engaging and informative, this timely guide contains valuable insights into various issues surrounding behavioral finance. Topics addressed include noise trader theory and models, research into psychological behavior pioneered by Daniel Kahneman and Amos Tversky, and serial correlation patterns in stock price data. Along the way, Burton shares his own views on behavioral finance in order to shed some much-needed light on the subject. Discusses the Efficient Market Hypothesis (EMH) and its history, and presents the background of the emergence of behavioral finance Examines Shleifer's model of noise trading and explores other literature on the topic of noise trading Covers issues associated with anomalies and details serial correlation from the perspective of experts such as DeBondt and Thaler A companion Website contains supplementary material that allows you to learn in a hands-on fashion long after closing the book In order to achieve better investment results, we must first overcome our behavioral finance biases. This book will put you in a better position to do so.
Download or read book Behavioral Finance and Wealth Management written by Michael M. Pompian and published by John Wiley & Sons. This book was released on 2011-01-31 with total page 393 pages. Available in PDF, EPUB and Kindle. Book excerpt: "Pompian is handing you the magic book, the one that reveals your behavioral flaws and shows you how to avoid them. The tricks to success are here. Read and do not stop until you are one of very few magicians." —Arnold S. Wood, President and Chief Executive Officer, Martingale Asset Management Fear and greed drive markets, as well as good and bad investment decision-making. In Behavioral Finance and Wealth Management, financial expert Michael Pompian shows you, whether you're an investor or a financial advisor, how to make better investment decisions by employing behavioral finance research. Pompian takes a practical approach to the science of behavioral finance and puts it to use in the real world. He reveals 20 of the most prominent individual investor biases and helps you properly modify your asset allocation decisions based on the latest research on behavioral anomalies of individual investors.
Download or read book The Financial Consequences of Behavioural Biases written by Imad A. Moosa and published by Springer. This book was released on 2017-10-25 with total page 184 pages. Available in PDF, EPUB and Kindle. Book excerpt: This book provides a concise analysis of behavioural biases and their implications for financial decision making. The book is written in the normative tradition, arguing strongly for the superiority of behavioural finance with respect to explaining observed phenomena in financial markets. It offers some unique features, including a discussion of the issue of conspiracy theory and how behavioural biases lead to belief in conspiracy theories. Lingering belief in the principles of neoclassical finance is attributed in part to the doctrine of publish or perish, which dominates contemporary academia. The offshoots of behavioural finance are discussed in detail, including ecological finance, environmental finance, social finance, experimental finance, neurofinance, and emotional finance. A comprehensive discussion of narcissism is presented where it is demonstrated that narcissistic behaviour is prevalent in the finance industry and that it led to the eruption of the global financial crisis.
Download or read book Behavioural Economy Related Trading War And Marketing written by Johnny Ch Lok and published by . This book was released on 2019-08-11 with total page 374 pages. Available in PDF, EPUB and Kindle. Book excerpt: What is Behavioral Finance Behavioral finance, a sub-field of behavioral economics, proposes psychology-based theories to explain stock market anomalies, such as severe rises or falls in stock price. The purpose is to identify and understand why people make certain financial choices. Within behavioral finance, it is assumed the information structure and the characteristics of market participants systematically influence individuals' investment decisions as well as market outcomes. The efficient market hypothesis (EMH) proposes that at any given time in a liquid market, prices reflect all available information. There have been many studies, however, that document long-term historical phenomena in securities markets that contradict the efficient market hypothesis and cannot be captured plausibly in models based on perfect investor rationality. Many traditional models are based on the belief that market participants always act in a rational and wealth-maximizing manner, severely limiting these models' ability to make accurate or detailed predictions.Behavioral finance attempts to fill this void by combining scientific insights into cognitive reasoning with conventional economic and financial theory. More specifically, behavioral finance studies different psychological biases that humans possess. These biases, or mental shortcuts, while having their place and purpose in nature, lead to irrational investment decisions. This understanding, at a collective level, gives a clearer explanation of why bubbles and panics occur. Also, investors and portfolio managers have a vested interest in understanding behavioral finance, not only to capitalize on stock and bond market fluctuations but to also be more aware of their own decision-making process. Behavioral finance encompasses many concepts, but four are key: mental accounting, herd behavior, anchoring, and high self-rating. Mental accounting refers to the propensity for people to allocate money for specific purposes. Herd behavior states that people tend to mimic the financial behaviors of the majority, or herd. Anchoring refers to attaching a spending level to a certain reference, such as spending more money on what is perceived to be a better item of clothing. Lastly, high self-rating refers to a person's tendency to rank him/herself better than others or higher than an average person. For example, an investor may think that he is an investment guru when his investment performs optimally but will dismiss his contributions to an investment performing poorly. Of the four concepts, two (herd instinct and self-rating/self-attribution) are biases that significantly affect financial decisions. A prominent psychological bias is the herd instinct, which leads people to follow popular trends without any deep thought of their own. Herding is notorious in the stock market as the cause behind dramatic rallies and sell-offs. The herd instinct is correlated closely with the empathy gap, which is an inability to make rational decisions under emotional strains, such as anxiety, anger, or excitement.The self-attribution bias, a habit of attributing favorable outcomes to expertise and unfavorable outcomes to bad luck or an exogenous event, is also closely studied within behavioral finance. George Soros, a highly successful investor, is known to account for this tendency by keeping a journal log of his reasoning behind every investment decision. Many other tendencies are studied within behavioral finance, including loss aversion, confirmation bias, availability bias, disposition effect, and familiarity bias.
Download or read book Do the Effects of Individual Behavioral Biases Cancel Out written by Harjoat Singh Bhamra and published by . This book was released on 2021 with total page 46 pages. Available in PDF, EPUB and Kindle. Book excerpt: A major criticism of behavioral economics is that it has not shown that the idiosyncratic biases of individual investors lead to aggregate effects. We construct a model of a general-equilibrium production economy with a large number of firms and investors. Investors' beliefs about stock returns are determined endogenously based on their psychological distances from firms; consequently, investors are optimistic about some stocks and pessimistic about others. We consider two examples: one where portfolio errors cancel out and the other in which the behavioral biases cancel out when aggregated across investors. We show asset prices and macroeconomic aggregates are still distorted.
Download or read book Investing Psychology written by Tim Richards and published by John Wiley & Sons. This book was released on 2014-04-01 with total page 256 pages. Available in PDF, EPUB and Kindle. Book excerpt: Discover how to remove behavioral bias from your investment decisions For many financial professionals and individual investors, behavioral bias is the largest single factor behind poor investment decisions. The same instincts that our brains employ to keep us alive all too often work against us in the world of finance and investments. Investing Psychology + Website explores several different types of behavioral bias, which pulls back the curtain on any illusions you have about yourself and your investing abilities. This practical investment guide explains that conventional financial wisdom is often nothing more than myth, and provides a detailed roadmap for overcoming behavioral bias. Offers an overview of how our brain perceives realities of the financial world at large and how human nature impacts even our most basic financial decisions Explores several different types of behavioral bias, which pulls back the curtain on any illusions you have about yourself and your investing abilities Provides real-world advice, including: Don't compete with institutions, always track your results, and don't trade when you're emotional, tired, or hungry Investing Psychology is a unique book that shows readers how to dig deeper and persistently question everything in the financial world around them, including the incorrect investment decisions that human nature all too often compels us to make.
Download or read book Inefficient Markets written by Andrei Shleifer and published by OUP Oxford. This book was released on 2000-03-09 with total page 225 pages. Available in PDF, EPUB and Kindle. Book excerpt: The efficient markets hypothesis has been the central proposition in finance for nearly thirty years. It states that securities prices in financial markets must equal fundamental values, either because all investors are rational or because arbitrage eliminates pricing anomalies. This book describes an alternative approach to the study of financial markets: behavioral finance. This approach starts with an observation that the assumptions of investor rationality and perfect arbitrage are overwhelmingly contradicted by both psychological and institutional evidence. In actual financial markets, less than fully rational investors trade against arbitrageurs whose resources are limited by risk aversion, short horizons, and agency problems. The book presents and empirically evaluates models of such inefficient markets. Behavioral finance models both explain the available financial data better than does the efficient markets hypothesis and generate new empirical predictions. These models can account for such anomalies as the superior performance of value stocks, the closed end fund puzzle, the high returns on stocks included in market indices, the persistence of stock price bubbles, and even the collapse of several well-known hedge funds in 1998. By summarizing and expanding the research in behavioral finance, the book builds a new theoretical and empirical foundation for the economic analysis of real-world markets.
Download or read book NBER Macroeconomics Annual 2003 written by Mark Gertler and published by Mit Press. This book was released on 2004 with total page 432 pages. Available in PDF, EPUB and Kindle. Book excerpt: The NBER Macroeconomics Annual presents pioneering work in macroeconomics by leading academic researchers to an audience of public policymakers and the academic community. Each commissioned paper is followed by comments and discussion. This year's edition provides a mix of cutting-edge research and policy analysis on such topics as productivity and information technology, the increase in wealth inequality, behavioral economics, and inflation.
Download or read book Household Portfolios written by Luigi Guiso and published by MIT Press. This book was released on 2002 with total page 552 pages. Available in PDF, EPUB and Kindle. Book excerpt: Theoretical and empirical analysis of the structure of household portfolios.
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:
