Behavioral Finance Archives

Empowering Investors Through Education Actually Works!

Empowering investors through education is a foundational tenet of our firm and a big reason why we write these posts. The article we cover here is a meta-analysis 76 randomized studies on the impacts and design of financial education, a topic we've hit on before. It' almost cliche now to hear parents and educators demand schools take the initiative to make financial education a high priority. However, it's reasonable to ask, does financial education even work?

What Do Mutual Fund Investors Really Care About?

Are individuals just naïve performance chasers, unaware of the financial literature, or are they sophisticated investors? Pretty much.

Do Mutual Funds Increase Disclosure Complexity to Hide Fees?

Do mutual funds create unnecessarily complex disclosures and fee structures to obfuscate weak net performance? Yes.

Value and Momentum Factors? Naw, Focus on the Music Factor!

Can market sentiment be derived from the tunes that your fellow countrymen are listening to? According to the research summarized here you'll find that there is important market information buried in the listening habits of Spotify users.

Can Prospect Theory Explain the Value and Momentum Factors?

Today we summarize an investigation into the usefulness of Prospect Theory and Narrow Framing to evaluate whether a new model can help explain 22 prominent market anomalies.

Should We Never Invest in Individual Stocks?

Due to the surprising headline that treasury bills seemingly outperform stocks, practitioners are starting to ask: Should I invest in individual stocks?

How Crazy is the Current Market? Not that Crazy.

Eric Balchunas had a recent tweet that I found fascinating. Eric's tweet merely captures the tip of the iceberg with respect to the current market [...]

The Momentum Factor is Driven by Behavioral Bias, Not Risk

Momentum, Reversals, and Investor Clientele Andy Chui, Avanidhar Subrahmanyam, and Sheridan TitmanReview of Financial Studies, 2021A version of this paper can be found hereWant to read [...]

Fee Disclosures Can Improve Investor Decision-Making

Out of Sight No More? The Effect of Fee Disclosures on 401(k) Investment Allocations Kronlund, Pool, Sialm and StefanescuJournal of Financial Economics, 2021A version of [...]

A History of Wealth Creation in the U.S. Equity Markets

Hendrik Bessembinder contributes to the literature on the returns to public equity investment diversification benefits with his study “Wealth Creation in the US Public Stock [...]

Studying Financial Idea “Infection Rates”

The rate of communication Huang, Hwang and LouJournal of Financial Economics, 2021A version of this paper can be found hereWant to read our summaries of academic [...]

Impact Investing: When Finance Meets Psycology

Impact Investing: Killing Two Birds with One Stone? Caseau and GrolleauFinancial Analyst Journal, 2020A version of this paper can be found hereWant to read our summaries [...]

Behavioral Finance Warning: Humans Love Complexity

People systematically overlook subtractive changes Gabrielle S. Adams, Benjamin A. Converse, Andrew H. Hales & Leidy E. Klotz Nature 592, 258-161A version of this paper can be found hereWant to read [...]

The Misery Index and Future Equity Returns

Prospect theory was developed by Daniel Kahneman and Amos Tversky in 1979. The theory starts with the concept of loss aversion—the observation that people react [...]

Leading EMH Economist John Cochrane Suggests that Advisor Fees Might be Justified

Sorry for the clickbait, but Hoover Institute fellow and “Grumpy Economist" John Cochrane's answers to the seemingly benign question, "How should long-term investors form portfolios," [...]

This Time is Different? Consider Quantifying Subjective Priors

This time is different. --John Templeton "This time is different," is a sentiment that leads many investors to stray from using data analysis in their [...]

We Should Increase Trust in Financial Services

Trust and Financial Advice Burke and HungJournal of Pension Economics and Finance, 2021A version of this paper can be found hereWant to read our summaries of [...]

Does Crowdsourced Investing Work?

Extrapolative Beliefs in the Cross Section: What Can We Learn from the Crowds? Zhi Da, Xing Huang, Lawrence J. JinJournal of Financial Economics, 2020A version [...]

Investing Based on Who you Follow on Social Media? A Real Thing?

Do Individual Investors Trade on Investment-related Internet Postings? Manuel Ammannt and Nic SchaubManagement Science, 2020A version of this paper can be found hereWant to read our [...]

A Short Research Library Outlining Why Traditional Stock Picking is Challenging

There are no "right" answers when it comes to financial markets. There are generally trade-offs to all decisions. For example, stocking picking can be incredible [...]

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