Behavioral Finance and Investing: Are you Trying Too Hard?
Everyone makes mistakes. It’s part of what makes us human. Because humans understand their actions are sometimes flawed, it was perhaps inevitable that the field of psychology would develop a rich body...
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Algorithm Aversion — Why people don’t follow the model!
There are many studies showing that models beat experts, including the meta-study “Clinical versus mechanical prediction: A meta-analysis” by Grove et al. (2000). However, given this knowledge that...
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The Sustainable Active Investing Framework: Simple, But Not Easy
The worst thing I can be is the same as everybody else. —Attributed to Arnold Schwarzenegger The debate over passive versus active investing is akin to other classic conflicts, such as Eagles vs....
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How Market Volatility Affects Our Brains
The current market volatility is justifiably causing people stress. Nobody wants to see their hard-earned wealth get vaporized. But how does increased stress affect decision-making? A recent paper...
View ArticleNew Evidence: Simple Forecasts Beat Complex Forecasts
Always seek to simplify. Occam’s razor teaches us we should cut away any extraneous factors that are unnecessary to explain something. Stated another way, we should avoid adding predictive elements...
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All firms can benefit from the positive influence of women
Marisa Mayer’s recent announcement that she is again pregnant, and does not plan to take maternity leave after her twins arrive, has once again raised the age-old question about how far women have...
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Beware of Target Date Funds – Their Aim May be Way Off
We like to use rules of thumb, or heuristics, when facing choices. We often default to rules of thumb because when finding the optimal choice is difficult, rules of thumb allow us to solve a problem...
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The Secrets of Social Influence: An Interview With Digg and Wharton Professor...
A critical element of being a good investor is understanding human behavior. In this piece we take our focus away from quantitative finance and focus on understanding the secrets of social influence....
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Are Stock Pricing Anomalies Driven by Risk or Mispricing?
Anomalies and News Engelberg, McLean and Pontiff 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...
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Does Science Advance One Funeral at a Time?
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...
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Money Doctors: Will You Trust Them in a Crisis?
Do you trust your doctor? If you’re like most people, chances are good that you do. And why not? What do you know about medicine anyway? But who do you trust when it comes to your money? In “Money...
View ArticleThe most concise explanation of behavioral finance I’ve ever seen
One of the most overused– and misunderstood — terms I’ve seen used by finance practitioners is “behavioral finance.” Many professionals consider themselves to be “behavioral finance experts” because...
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Can A Brutal Stock Market Make You Physically Sick?
Worrying About the Stock Market: Evidence from the Hospital Admissions Engelberg and Parsons A version of the paper can be found here. Want a summary of academic papers with alpha? Check out our...
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Media Coverage and Stock Returns
Ninety Years of Media Coverage and the Cross-Section of Stock Returns Hillert and Ungeheuer A version of the paper can be found here. Want a summary of academic papers with alpha? Check out our...
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Shocking: Your Experience in the Uterus May Influence Your Investment Decisions!
The Fetal Origins Hypothesis in Finance: Prenatal Environment, the Gender Gap, and Investor Behavior Cronqvist, Previtero et al. A version of the paper can be found here. Want a summary of academic...
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Chasing Returns and Avoiding “Spaghetti against the Wall Fund Companies”
Psychology research suggests that when we make predictions, we suffer from “representative bias,” and mistakenly overweight observations that fit a particular narrative, and fail to consider base rate...
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Why do academic researchers avoid behavioral finance?
Charlie Munger, Warren Buffett’s right-hand-man and Vice Chairman of Berkshire Hathaway, has said the following regarding behavioral economics: How could economics not be behavioral? If it isn’t...
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Can Losing Lead to Winning?
Can Losing Lead to Winning Berger and Pope 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: Individuals,...
View ArticleHave benchmarks made us bad active investors?
Curse of the Benchmarks Vayano and Woolley A version of the paper can be found here. Want a summary of academic papers with alpha? Check out our Academic Research Recap Category. h.t., J. Zaccardi....
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Recreating Asset Bubbles in the Laboratory
Are we in a bubble? It depends on what asset class you’re referring to, whom you ask, and what you mean by “bubble.” We’ve posted before on how some great finance minds define bubbles, and why they...
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