Humble Pie Prevents 99.8% Drawdowns
It’s not every day you hear news of a 99.8% drawdown, but it looks like today is one of those days. Owen Li of Canarsie Capital reportedly wrote a letter to investors saying he was “very sorry” that...
View ArticleFor an Auditor, Intuition Might Matter!
Thinking Fast versus Thinking Slow: The Effect on Auditor Skepticism Wolfe, Christensen and Vandervelde A version of the paper can be found here. Want a summary of academic papers with alpha? Check out...
View ArticleThe “hot hand” in basketball. New evidence!
For years, the "hot hand" in basketball has been declared a "fallacy." To be clear, the "hot hand" argument is that basketball players have streaks, where the probability of hitting a basket is higher...
View ArticleOne Secret to More Creative Thinking? The Effect of Walking
Researchers at Stanford recently conducted a study that found that the physical act of walking improved creative thinking in subjects. We believe creative thinking is an important aspect of investing,...
View ArticleHow to Make Money in Markets: Understanding Expectation Errors
A new working paper from Gennaili, Ma, and the one-the-only Andrei Shleifer. Expectations and Investment Using micro data from Duke University quarterly survey of Chief Financial Officers, we show that...
View ArticleP/E “Attention” Strategies Earn Monthly Excess Return of 1%!
Rankings of Published Pricing-earnings Ratios and Investor Attention Jordan Moore A version of the paper can be found here. Want a summary of academic papers with alpha? Check out our Academic Research...
View ArticleDo Behavioral Biases affect PGA Tour players?
Is Tiger Woods Loss Averse? Persistent Bias in the Face of Experience, Competition, and High Stakes Pope and Schweitzer A version of the paper can be found here. Want a summary of academic papers with...
View ArticleBehavioral Bias Bingo: The Affect Heuristic
How do your feelings affect your decisions? "Humans perceive and act on risk in two fundamental ways. Risk as feelings refers to individuals' instinctive and intuitive reactions to danger. Risk as...
View ArticleBehavioral Bias Bingo: Disposition Effect
Sell Winners Too Early and Hold Losers Too Long Researchers have explored the "disposition effect" for years, which describes how investors are more likely to sell a stock that has gone up in value...
View ArticleBehavioral Bias Bingo: “Knew it all along” bias
Hindsight bias: How we overestimate our prediction abilities People tend to overestimate their own predictive power when events have already occurred. This is commonly known as "hindsight bias", or the...
View ArticleBehavioral Bias Bingo: Trophy Effect
Hard work ≠ Value "Imagine you play in a tennis tournament at your local club. As your opponents are of the same strength as you, playing the matches is hard work. Now imagine you have managed to win...
View ArticleBehavioral Bias Bingo: Decoy Effect
“When my information changes, I alter my conclusions. What do you do, sir?” - John Maynard Keynes How does the Decoy Effect work? Here is a simple example from Huber, Payne and Puto (1982): A store...
View ArticleBehavioral Bias Bingo: Confirmation Bias
Confirmation bias leads to the selective use of information It is easy to obtain confirmations, or verifications, for nearly every theory - if we look for confirmations. - Karl Popper We'll start with...
View ArticleBehavioral Bias Bingo — The Illusion of Control
The Illusion of Control In most elevators, at least in any built or installed since the early nineties, the door-close button doesn’t work. It is there mainly to make you think it works. (It does work...
View ArticleBehavioral Bias Bingo — Mental Accounting
Mental Accounting and Your Money "Mr. and Mrs. L and Mr. and Mrs. H went on a fishing trip in the northwest and caught some salmon. They packed the fish and sent it home on an airline, but the fish...
View ArticleBehavioral Bias Bingo — The Whimsical Cuteness Effect
"So Cute I Could Eat it Up": Priming Effects of Cute Products on Indulgent Consumption Nenkov and Scott A version of the paper can be found here. Want a summary of academic papers with alpha? Check out...
View ArticleBehavioral Bias Bingo — Availability Heuristic
If you can recall something, you think it's important From 1990 through 2000 there were 1.4 deaths per 10 million passengers on U.S. scheduled airlines. Flying understandably feels dangerous. But we...
View ArticleBehavioral Bias Bingo — False-Consensus Bias
I Believe...Why Don't You? To believe your own thought, to believe that what is true for you in your private heart, is true for all men--this is genius. -- Emerson, Self-reliance (1841) False...
View ArticleBehavioral Finance: Part Behavior, Part Market Frictions
The baseline theory for understanding asset prices is the Efficient Market Hypothesis (the “EMH”), pioneered by Eugene Fama. Of particular interest is semi-strong market efficiency, which claims that...
View ArticleWhat is Behavioral Finance?
Behavioral finance means a lot of things to a lot of people. In this short piece I'll outline what "behavioral finance" means to academic researchers. The image below highlights the foundations of...
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