Behavioral Finance

//Behavioral Finance

Frequent Trading + Optimistic Analyst Recommendations = Significant Misvaluations!

By | 2017-08-18T17:04:47+00:00 January 20th, 2015|Research Insights, Behavioral Finance|

Stock Duration, Analysts Recommendations, and Misvaluation Cremers, Pareek and Sautner A version of the paper can be found here. A blog on an older version of paper can be found here. Want a summary of academic [...]

Hard to Fire Yourself; Easy to Fire Your Manager

By | 2017-08-18T17:03:59+00:00 December 18th, 2014|Research Insights, Behavioral Finance|

Looking for Someone to Blame: Delegation, Cognitive Dissonance, and the Disposition Effect Chang, Solomon, Westerfield A version of the paper can be found here. Want a summary of academic papers with alpha? Check out our Academic Research [...]

Stop Paying Attention to Your Brokerage Statements

By | 2017-08-18T16:56:39+00:00 December 10th, 2014|Research Insights, Behavioral Finance, Uncategorized|

The Worst, the Best, Ignoring All the Rest: The Rank Effect and Trading Behavior Hartzmark A version of the paper can be found here. Want a summary of academic papers with alpha? Check out our Academic Research [...]

Avoid the Experts: A Lesson in CFO Overconfidence

By | 2017-08-18T17:09:51+00:00 December 5th, 2014|Research Insights, Behavioral Finance|

Managerial Miscalibration Ben-David, Graham and Harvey A version of the paper can be found here. Want a summary of academic papers with alpha? Check out our Academic Research Recap Category. Abstract: Using a unique 10-year panel that [...]

Thanksgiving Day NFL Gamblers–Take Notes!

By | 2017-08-18T16:55:52+00:00 November 27th, 2014|Research Insights, Behavioral Finance|

Efficiency and the Disposition Effect in NFL Prediction Markets Hartzmark and Solomon A version of the paper can be found here. Want a summary of academic papers with alpha? Check out our Academic Research Recap Category. Abstract: [...]

Avoid CEOs that Golf like Tiger Woods

By | 2017-08-18T17:09:53+00:00 October 24th, 2014|Research Insights, Behavioral Finance|

FORE! An analysis of CEO shirking Biggerstaff, Cicero and Puckett A version of the paper can be found here. Want a summary of academic papers with alpha? Check out our Academic Research Recap Category. Abstract: Using CEO [...]

Surprising Facts on Post-Earnings Announcement Drift

By | 2017-08-18T16:56:31+00:00 September 17th, 2014|Research Insights, Behavioral Finance|

Recency Bias and Post-Earnings Announcement Drift Qingzhong Ma, David Whidbee, and Wei Zhang A version of the paper can be found here. Want a summary of academic papers with alpha? Check out our Academic Research Recap Category. [...]

Predicting Mental Defects: Does the Model or the Expert Win?

By | 2017-08-18T16:59:11+00:00 June 14th, 2014|Behavioral Finance|

Clinical intuition and test scores as a basis for diagnosis Klehr, R. Journal of Consulting Psychology, 13, 34-38 An online version of the paper can be found here Want a summary of academic papers with [...]

Earnings Growth Rate Mean-Reversion–it’s Science

By | 2017-08-18T17:05:55+00:00 May 30th, 2014|Research Insights, Behavioral Finance|

We're often asked: Why does value investing work? You guys simply buy crappy high-risk companies. Of course you outperform. I typically agree with claims that markets are efficient. In fact, I highlight this point in [...]

Trusting Your Financial Advisor: Beware of your Behavioral Bias

By | 2017-08-18T16:54:16+00:00 May 23rd, 2014|Behavioral Finance|

Financial advisers are ubiquitous in the US, where many investors hire them to assist with investing, financial planning and other types of financial decision-making. Advisers can be helpful when people lack the expertise or the [...]

Behavioral Bias Bingo – Hyperbolic Discounting, Present Bias and the Disposition Effect in Investing

By | 2017-08-18T17:09:43+00:00 May 22nd, 2014|Behavioral Finance|

Hyperbolic discounting and Present bias Executive Summary: "Intertemporal tradeoffs are ubiquitous in decision making, yet preferences for current versus future losses are rarely explored in empirical research. Whereas rational-economic theory posits that neither outcome sign [...]

Behavioral Bias Bingo — Ellsberg / Allais paradoxes: choice under uncertainty

By | 2017-08-18T17:09:42+00:00 May 21st, 2014|Behavioral Finance|

Human beings crave certainty and loath ambiguity. People naturally gravitate towards the "sure thing" versus another option where the outcome is uncertain. Sometimes this is true even when the uncertain path may have huge upside. [...]

Introduction to Behavioral Finance – Part 2: Limits of Arbitrage

By | 2017-08-18T17:02:44+00:00 May 20th, 2014|Behavioral Finance|

In the first part of our series, “Introduction to Behavioral Finance – Part 1: Behavioral Bias,” we explored several market anomalies, and the first required condition for the real-life implementability of many quantitative strategies: the existence of human behavioral biases. In this Part 2 of our series, we consider a related question following from our Keynes example: given that certain behavioral biases can affect investors, how can it be that their effects persist in markets so we can take advantage of them? This would seem to contravene the notion of efficient markets, and leads to the second required condition for implementing a tradable strategy: limits to arbitrage.

Introduction to Behavioral Finance – Part 1: Behavioral Bias

By | 2017-08-18T17:02:45+00:00 May 19th, 2014|Behavioral Finance|

In this blog post, Part 1 of our two part series on Behavioral Finance, we explore human behavioral biases, how they affect us as investors, and how they are reflected in the stock market. In Part 2 of our series, we will explore the second required ingredient for profiting from behavioral bias: Limits of Arbitrage. Human behavior is diverse and complex and, unfortunately, despite our best intentions, it is not always governed exclusively by rationality. In particular, our judgment and decision-making can be significantly affected by intuition, a form of abstract, automatic thinking that can override our reason. Decades of research in psychology have shown that intuition is often systematically biased, and follows identifiable patterns, causing us to reach conclusions that are predictable wrong, since they are based on our gut or instincts, rather than on logic. An important aspect of behavioral biases is that they affect us in areas of our lives where it is very important that we be purely rational, such as in investing. In this blog post, we highlight a number of behavioral biases, and specifically how they can affect investors. Before getting into the specifics, we wanted to review some background we hope will be informative, and put the biases into an appropriate investing context.

Algorithms Beat Intuition – the Evidence is Everywhere

By | 2017-08-18T17:10:45+00:00 May 7th, 2014|Behavioral Finance|

Would you trust a computer to drive your car? Google’s self-driving cars are now driving on city streets, and are rapidly becoming better drivers than humans in many respects. A recent Google blog post explains: [...]