Behavioral Finance

//Behavioral Finance

Book Review — The Drunkard’s Walk: How Randomness Rules Our Lives

By | 2017-08-18T17:09:06+00:00 May 10th, 2016|Research Insights, Behavioral Finance, Book Reviews|

Although randomness is all around us, we often fail to recognize the profound role it plays in our lives. Evolutionary biology and faulty intuition lead us to make mistakes that can radically distort our perception of [...]

Comments Off on Book Review — The Drunkard’s Walk: How Randomness Rules Our Lives

Leveraging Persuasion Science to Nudge Investors in a Better Direction

By | 2017-08-18T17:01:25+00:00 June 22nd, 2016|Behavioral Finance|

Making choices can be difficult, but possible alternatives can be arranged in a way that facilitates effective decision-making. This is the idea behind “choice architecture,” an concept that is explored in the book, “Nudge,” by [...]

Comments Off on Leveraging Persuasion Science to Nudge Investors in a Better Direction

Behavioral Finance Must See: Thaler’s 2016 Presidential Address

By | 2017-08-18T17:09:31+00:00 July 1st, 2016|Behavioral Finance|

This is a great video to watch over the holiday weekend. Prof. Thaler does a great job walking through behavioral finance/economics. He also has a paper on related topics: Behavioral Economics: Past, Present and Future [...]

Value investing is quite possibly the worst idea…EVER

By | 2017-08-18T16:53:51+00:00 September 14th, 2016|Research Insights, Behavioral Finance, Value Investing Research|

We believe deeply in the value philosophy as first described by Ben Graham: view stocks as ownership in a firm; buy with a margin of safety; avoid stories; think independently; and so forth. In fact, [...]

Book Review — Loaded: Money, Psychology, and How to Get Ahead…

By | 2017-08-18T17:09:08+00:00 January 16th, 2017|Behavioral Finance, Book Reviews|

A few months ago I had the pleasure of hearing Sarah Newcomb speak at a recent Morningstar ETF conference. She was extraordinary. Although I only caught the last 20 minutes of her talk, she had [...]

Comments Off on Book Review — Loaded: Money, Psychology, and How to Get Ahead…

Does Science Advance One Funeral at a Time?

By | 2017-08-18T17:06:08+00:00 January 13th, 2016|Behavioral Finance, Uncategorized|

A really interesting paper hit the NBER wires recently. The central argument of the paper is that "rock star" thought leaders dominate a field, but when they die, new thought leaders are able to emerge. [...]

Comments Off on Does Science Advance One Funeral at a Time?

The Sustainable Active Investing Framework: Simple, But Not Easy

By | 2017-08-18T16:55:10+00:00 August 17th, 2015|Key Research, Behavioral Finance|

We cannot overemphasize that identifying sustainable alpha in the market is no cakewalk. More importantly, being smart, having superior stock-picking skills, or amassing an army of PhDs to crunch data is only half of the equation. Even with those tools, you are still only one shark in a tank filled with other sharks. All sharks are smart, all sharks have a MBA or PhD from a fancy school, and all the sharks know how to analyze a company. Maintaining an edge in these shark infested waters is no small feat, and one that only a handful of investors has accomplished. In order to achieve sustainable success as an active investor, one needs not only skill, but also an understanding of human psychology, and an appreciation of market incentives (behavioral finance). We start our journey where mine began: as an aspiring PhD student studying at the University of Chicago. Let the adventure begin... This post is not meant to convert a passive investor into an active investor; however, we do explain why we believe active investing can sustainably beat passive strategies in the long run. Plus, we bring to bear many years of cumulative research and experience to support our arguments. We cannot overemphasize that alpha in the market is no cakewalk. More importantly, being smart, having superior stockpicking skills, or amassing an army of PhDs to crunch data is only half of the equation. Even with those tools, you are still only one shark in a tank filled with other sharks. All sharks are smart, all sharks have a MBA or PhD from a fancy school, and all the sharks know how to analyze a company. Maintaining an edge in these shark infested waters is no small feat, and one that only a handful (e.g., we can count them in one hand) of investors has successfully accomplished. In order too achieve sustainable success as an active investing, one needs both skill and an understanding of human psychology and market incentives (behavioral finance). We start our journey where mine began: as an aspiring PhD student studying under Eugene Fama at the University of Chicago. Let the adventure begin...

Kenyan Sex Markets and Behavioral Finance

By | 2017-08-18T17:01:29+00:00 March 6th, 2011|Research Insights, Behavioral Finance|

"Though formal and informal sex work has long been identified as crucial for the spread of HIV/AIDS, the nature of the sex-for-money market remains poorly understood. Using a unique panel dataset constructed from 192 self-reported diaries, we find that women who engage in transactional sex substantially increase their supply of risky, better compensated sex to cope with unexpected health shocks, particularly the illness of another household member. These behavioral responses entail significant health risks for these women and their partners, and suggest that these women are unable to cope with risk through other consumption smoothing mechanisms."

Talking Your Book–Make it Part of Your Investment Program

By | 2017-08-18T16:56:13+00:00 March 11th, 2011|Research Insights, Behavioral Finance|

"We study how professional investors use social networks to impound price-relevant information into asset prices. Exploiting novel data from an online social network that facilitates information sharing among fund managers, we find that long (short) recommendations released into the private network generate cumulative abnormal returns of 3.61% (-4.90%) over a twenty-day window. These results suggest that social networks play a direct role in facilitating the price discovery process."

Is Trading with Twitter only for Twits?

By | 2017-08-18T17:01:36+00:00 April 26th, 2011|Research Insights, Behavioral Finance|

Tweets and Trades: The Information Content of Stock Microblogs Timm Sprenger and Isabell Welpe A version of the paper  can be found here. Abstract: Microblogging forums have become a vibrant online platform to exchange trading [...]

The Death of Twitter Trading?

By | 2017-08-18T16:55:40+00:00 May 25th, 2012|Research Insights, Behavioral Finance|

Almost a year ago, we posted a few articles on strategies focused on using Twitter as a mechanism to trade stocks. Our basic conclusion was "BS!" Here are the original articles: https://alphaarchitect.com/2011/05/institutional-investor-on-twitter-trading/ https://alphaarchitect.com/2011/04/is-trading-with-twitter-only-for-twits/ And an [...]

Active Versus Passive for the US and the Canadian Markets

By | 2017-08-18T17:10:53+00:00 February 7th, 2017|Behavioral Finance, Active and Passive Investing, ETF Investing|

We all hear about the massive move away from active to passive in the US market. We also hear arguments that passive may eat the world and that active management is a zero sum game [...]