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Behavioral Finance

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Behavioral Finance For The Individual Investor, Drake Gens Dec 2020

Behavioral Finance For The Individual Investor, Drake Gens

Senior Honors Theses

The Efficient Market Hypothesis (EMH) has been generally accepted in academia despite its well-researched flaws; by understanding how and when markets deviate from efficiency, investors have an opportunity to not only better understand their investing habits, but also possibly generate higher investment returns. Various market anomalies, such as the Value Effect (De Bondt & Thaler, 1985), the Monday Effect (French, 1980), and the January Effect (De Bondt and Thaler, 1958 & 1987), attest to the fact that markets experience periods of deviation from efficiency. Fiévet and Sornette (2016) finding that markets experience inefficiency during periods of significant volatility is confirmed …

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Why Is Las Vegas Busy Everyday? A Behavioural Analysis Of Impact Investors’ Attitude And Decision-Making Process, Isha Shah Apr 2020

Why Is Las Vegas Busy Everyday? A Behavioural Analysis Of Impact Investors’ Attitude And Decision-Making Process, Isha Shah

Independent Study Project (ISP) Collection

Remarking a discrepancy in the statistics of a growing influence of impact investment and yet its restrictive inclusion in the financial market has encouraged this inductive research to take an alternative approach to address the impact investment market. In an emic perspective, this study aims to assess the factors motivating individuals and institutions to pursue impact investment. Further, it also investigates some elements that guide the decision making of the investors in this field. The qualitative nature of the research demands exceptional secondary sources and it is rendered more credible with the inclusion of three relevant primary sources. The analysis …

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Behavioral Finance And Its Impact On Investing, Jordan Fieger Apr 2017

Behavioral Finance And Its Impact On Investing, Jordan Fieger

Senior Honors Theses

The field of behavioral finance has seen incredible growth over the past half century as it has explored the effect that cognitive psychological biases can have on investors’ financial decisions. Behavioral finance stands in stark contrast to the efficient market hypothesis, as it attributes market inefficiencies to investors who are not perfectly rational human beings. It offers a solution to the observed 3.5% gap that active equity investors miss out on in the market compared to passive index funds, which it attributes to their emotions and psychological biases. These common human biases can be grouped into five major categories: heuristics, …

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Stock Loan Lotteries And Individual Investment Performance, Jordan Moore Jan 2017

Stock Loan Lotteries And Individual Investment Performance, Jordan Moore

Rohrer College of Business Departmental Research

Individual investors trade excessively, sell winners too soon, and overweight stocks with lottery features and low expected returns. This paper models a financial innovation to address these biases and improve individual investor performance. Individual investors pledge shares of stock to an exchange for multiple periods and face a steep penalty for redeeming shares early. The exchange lends the shares to institutions and holds a lottery with the lending fees. I extend the Barberis and Xiong (2009) discrete-time model of realization utility to include stock loan lotteries. Investors with cumulative prospect theory preferences are reluctant to forgo trading opportunities for fixed …

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Macro Disagreement And The Cross-Section Of Stock Returns, Frank Weikai Li Jun 2016

Macro Disagreement And The Cross-Section Of Stock Returns, Frank Weikai Li

Research Collection Lee Kong Chian School Of Business

This paper examines the effects of macro-level disagreement on the cross-section of stock returns. Using forecast dispersion measure from Survey of Professional Forecasters database, I find that when forecast dispersion on macroeconomic factor is high, stocks that have high loadings on that factor earn lower future returns relative to stocks with low loadings and vice versa. This negative relationship between risk premium of macro-factors and macro-level disagreement is robust and exists for a large set of macroeconomic risk factors. These findings are consistent with the model of Hong and Sraer (2015), where high beta stocks are more prone to speculative …

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In Equations We Trust? Formula Learning Effects On The Exponential Growth Bias, Bryan Foltice, Thomas Langer Jan 2016

In Equations We Trust? Formula Learning Effects On The Exponential Growth Bias, Bryan Foltice, Thomas Langer

Scholarship and Professional Work - Business

This paper evaluates the possible benefits and drawbacks of the formal formula learning of compound growth as it pertains to eliminating, or at least reducing, the exponential growth bias in various household savings and debt decisions. In our main experimental study, we determine if the ability to calculate the simple compound savings formula only assists in its direct area of application with an available calculator, or if this knowledge extends into similar exponentially-based savings and debt decisions when either a calculator is prohibited or when the formula is unknown. In the process of tackling this research question, we develop a …

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Building A Better Mousetrap: Enhanced Dollar Cost Averaging, Lee Dunham, Geoffrey C. Friesen Dec 2011

Building A Better Mousetrap: Enhanced Dollar Cost Averaging, Lee Dunham, Geoffrey C. Friesen

Department of Finance: Faculty Publications

This paper presents a simple, intuitive investment strategy that improves upon the popular dollarcost- averaging (DCA) approach. The investment strategy, which we call enhanced dollar-costaveraging (EDCA), is a simple, rule-based strategy that retains most of the attributes of traditional DCA that are appealing to most investors but yet adjusts to new information, which traditional DCA does not. Simulation results show that the EDCA strategy reliably outperforms the DCA strategy in terms of higher dollar-weighted returns about 90% of the time and nearly always delivers greater terminal wealth for reasonable values of the risk premium. EDCA is most effective when applied …

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Sportsbook Pricing And The Behavioral Biases Of Bettors In The Nhl, Rodney Paul, Andrew Weinbach Dec 2009

Sportsbook Pricing And The Behavioral Biases Of Bettors In The Nhl, Rodney Paul, Andrew Weinbach

Falk College Research Center

The betting market for the NHL is investigated using actual betting percentages on favorites and underdogs from real sportsbooks. Sportsbooks do not appear to attempt to price to balance the book as betting percentages are not proportional to set odds. As in the NFL and NBA, bettors are shown to have a strong preference for favorites and road favorites in particular. Simple strategies of betting against significant imbalances toward the favorite are shown to generate positive returns. Although not pricing to balance the book, sportsbooks do not appear to price to exploit known bettor biases in all cases. Clear bettor …

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