Posts Tagged ‘Behavioral Finance



24
Feb
10

Paper: Momentum y Deportes

Momentum and Sports Betting

Abstract:
I document that momentum trading strategies are significantly profitable in an intragame NBA sports betting market. The momentum profits appear to be the result of market underreaction to news, but I find no evidence that the underreaction is driven by the psychological biases that form the foundation of existing behavioral models of momentum. Together, my results suggest that new theories of momentum might be needed.

Link al Paper

19
Feb
10

Paper: Caracteristicas y Retornos

Characteristics, Affect, and Stock Returns

Abstract:
Why were the returns of stocks with low book-to-market ratios and high market capitalization’s lower, on average, than the returns of stocks with high book-to-market ratios and low market capitalization’s? In this paper we pit the characteristics hypothesis against the affect hypothesis. The characteristics hypothesis says that some characteristics, such as low book-to-market ratio and high market capitalization, are associated with high future stock returns in typical investors’ minds. The affect hypothesis says that the names of some companies elicit positive affect which is associated with high future stock returns in typical investors’ minds. We find, through experiments, that the evidence is more consistent with the affect hypothesis than with the characteristics hypothesis.

Link al Paper

10
Feb
10

Paper: Crisis y Mercados Eficientes

Efficient Markets in Crisis

Abstract:
A belief that markets are efficient is blamed for instigating the crisis we are in and lulling us into complacency as the crisis was approaching. But the debate about the role of such belief in the crisis is unfocused for two reasons. First, a lack of a common definition of market efficiency precludes a common language. Second, efficient markets are conflated with free markets.
The ambitious definition of efficient markets is their definition as rational markets, where security prices always equal intrinsic values. The modest definition of efficient markets is their definition as unbeatable markets. Bubbles cannot occur in rational markets but they can occur in unbeatable markets. I argue that a belief in market efficiency cannot bear responsibility for our crisis since most investors do not believe that markets are either rational or unbeatable.
Free markets are markets where government puts little or no imprint on the financial behavior of individuals and organizations and on markets through regulations and direct intervention. Many advocates of free markets believe that such markets are also more efficient than markets which are not as free. But free markets are distinct from efficient markets. Highly regulated markets can be no less efficient in the sense of rational markets or unbeatable markets than lightly regulated markets. I argue that a belief that free markets are always superior to regulated markets and lightly regulated markets are always superior to heavily regulated markets does bear some responsibility for our crisis. Regulations that would have limited the types of mortgages offered to homeowners would have helped stem the crisis or mitigate it. So would have limits on the degree of leverage employed by banks and homeowners alike.
Yet not all regulations and government interventions bring unmitigated benefits. We have no precise measures by which we might distinguish real bubbles from illusory ones. Governments which aim to pop real bubbles run the risk of plunging us into recessions by popping illusory ones. While high P/E ratios and similar measures might alert us to the presence of real bubbles, they are far from precise. The challenge we face is the challenge of seeing an opaque future as clearly as possible, knowing not only that foresight is not as clear as hindsight but also that we would be judged in the future as if it is.

Link al Paper

31
Jan
10

Sesgo de confirmacion

El sesgo de confirmación (confirmation bias) define la tendencia del ser humano a buscar la confirmación de sus creencias y desestimar cualquier nueva información que niegue a las mismas. (Aqui hay otros sesgos cognitivos).

Un paper al respecto: Confirmation Bias: A Ubiquitous Phenomenon in Many Guises.

Un metodo para testearlo: Wason Rule Discovery Test

26
Jan
10

cuan dificil es el trading intradiario?

Muy brevemente -y de forma literata- Brett Steenbarger, responde esto en un post de su blog Trader Feed.

Imagine the market affected by two relatively independent vectors. One vector describes directionality: the “trendiness” of the market. The other vector describes volatility: the degree to which markets vary around a central price.

(…) Both vectors are distributed in a non-stationary way through the trading day. That is, measures of trendiness and volatility exhibit different means and standard deviations through the day.

(…) Many trading problems occur because traders trade the vectors as if they are stationary (…)


11
Jan
10

Un poco de Psicologia…

The Phy-Fi Blog tiene un postde behavioral finance– sobre la psicologia de los dividendos (el pago de los mismos).  De lectura comoda, sin dejar de ser critica (Palo para M&M: Miller y Modigliani).

(…) So, a change in dividend policy may often indicate a change in the company’s fortunes. A cut in dividends will often signal reduced earnings – although it sometimes indicates that there are better earnings enhancing opportunities around. Similarly an unexpectedly raised dividend will often see a share price surge – even though this often indicates that the management have run out of ideas about how to deploy their spare cash, which isn’t exactly a positive sign.

03
Dec
09

Behavioral Finance: Paper

Psychological Anchors, Underreaction, Overreaction, and Asset Prices

Abstract:
Motivated by both statistical and psychological evidence on under and over-reaction, we propose two proxies for the degree to which traders under- and over-react to news, namely, the nearness to the Dow 52-week high and the nearness to the Dow historical high, respectively. We find that nearness to the 52-week high positively predicts future market returns. We further show that our proxies contain information about future market returns that is not captured by traditional macroeconomic variables and that our results are robust across G7 countries. In cross-sectional analysis, for stocks that have more likely experienced underreaction (to either good news or bad news) in the past, the momentum effect is about 3 times stronger. For stocks that have more likely experienced overreaction in the past, the value premium is also much stronger.

Link al paper (Bajarlo de Chicago Booth)




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