According to The Babson Staff Letter human emotion is one of the most powerful factors affecting stock market prices today. The strong influence of this psychological factor has been demonstrated ...dramatically in the past five years, as the euphoria of the technology boom reached unprecedented heights in the late 1990s and then evaporated in early 2000, when investors suddenly realized that no tree grows to the sky. Now, after a strong rebound in stock prices, fear has faded, confidence is returning, and investors are again buying mutual fund shares, to the tune of nearly $20 billion a month. The same pattern appears among the supposedly more sophisticated institutional investors
In their new book, Behavioral Finance, Joachim Goldberg and Rudiger von Nitzsch are building on a growing body of new research that highlights the impact of human behavior and psychology on the ...markets. Goldberg, a behavioral finance specialist, and von Nitzsch, a finance professor ant the University of Aachen, challenge the theory that markets are purely rational and efficient, arguing that emotional and, importantly, irrational factors, can have a major effect on market activity.
Reversals' misfortune Kedrosky, Paul
Canadian business (1977),
07/2004, Letnik:
77, Številka:
10
Magazine Article
As self-refuting as it might seem, contrarianism is in vogue in the stock markets. It sometimes seems like everyone is trying to buy when everyone else is selling (or vice versa); hordes of investors ...come racing in when a high-profile stock declines significantly. But having contrarianism in vogue means everyone is doing the opposite of what everyone else is doing. The truth is that contrarianism - at least the short-term sort - is mostly a golden appeal to people's messed-up investing psychology. They notice when stocks climb after they sell them, and they whip themselves for being so dumb as to have sold when they knew the stock would soar the next day. People don't notice, however, that most crisis-hit stocks don't rise nearly so neatly. As studies show, stocks that fall 10% or more in a single day usually fall - not rise - even more on subsequent days.
Think you're a smart investor? Sanford, Jeff
Canadian business (1977),
05/2004, Letnik:
77, Številka:
11
Magazine Article
Ostensibly, markets are rational creatures, where prices track the fundamentals of an asset. But behavioural finance soundly overturned that belief by documenting all the ways in which humans fail to ...follow a logical course. Along with all the research came investors who figured that if all the players in a market have the same psychological biases, it should be possible to identify those patterns and use them to identify mispriced assets. Although the behaviourists abolished the assumption that financial markets are completely rational, it doesn't mean they are completely irrational, either. The middle truth is that there is a constant interplay between the fundamentals of an investment and the psychology of the investors who own it.
This paper introduces a real-time, continuous measure of national sentiment that is language-free and thus comparable globally: the positivity of songs that individuals choose to listen to. This is a ...direct measure of mood that does not pre-specify certain mood-affecting events nor assume the extent of their impact on investors. We validate our music-based sentiment measure by correlating it with mood swings induced by seasonal factors, weather conditions, and COVID-related restrictions. We find that music sentiment is positively correlated with same-week equity market returns and negatively correlated with next-week returns, consistent with sentiment-induced temporary mispricing. Results also hold under a daily analysis and are stronger when trading restrictions limit arbitrage. Music sentiment also predicts increases in net mutual fund flows, and absolute sentiment precedes a rise in stock market volatility. It is negatively associated with government bond returns, consistent with a flight to safety.
Consumer resistance and inertia related behaviors are as important as adoption behaviors. Resistance can lead to unwillingness on the part of the investors to invest in a particular financial ...product. On the other hand, inertia can potentially lead to loyalty, despite dissatisfaction with a financial product. Consequently, an understanding of the antecedents and outcomes of retail investors’ resistance and inertia toward investments is valuable for firms selling investment products. Although the literature on resistance and inertia is around three decades old, empirical research related to retail investment decision making has only recently gained momentum, resulting in limited but interesting findings. The current study utilizes a systematic literature review (SLR) methodology to review prior studies in this domain. The SLR presents research profiling and an extensive content analysis of the studies selected by applying a robust search protocol. The study findings highlight numerous aspects of retail investment behavior, underscore research gaps in the prior literature, and offer recommendations for future research. Furthermore, a comprehensive framework, labelled resistance adoption inertia continuance (RAIC), is proposed to investigate the behavior of retail investors. The study concludes with meaningful theoretical and practical implications that can help counter resistance and inertia toward different financial products.
•For retail investors, resistance and inertia are vital considerations for decision making.•There is little understanding of the decision making related to investors' resistance and inertia.•We conducted systematic literature review of the studies on resistance and inertia in retail investment.•We utilized the innovation resistance theory and status quo bias for developing the resistance adoption inertia continuance (RAIC) framework.•The findings of the study can guide future research and practice agendas.
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