Posts Tagged ‘Behavioral Finance


San Petersburgo, paradoja

El Psy-Fi Blog tiene una entrada interesante donde arremete contra un concepto medular de la Economia, la Utilidad.

Rescato, los párrafos dedicados a la Paradoja de San Petersburgo -cortesia de Nicolas Bernoulli- y a los comienzos de la probabilidad con Pascal y Fermat.


Then Nicholas Bernoulli came up with the St. Petersburg Paradox, a position that stands in stark contradiction to Pascal’s Wager, arguing that there is no limit to the amount you should be prepared to gamble in quest of a greater fortune. The paradox, simply stated, envisages two gamblers betting on the toss of a coin. On the first toss if it lands on tails the winner gets $2, on the second a tail yields $4, on the third $8 and so on, forever. If you calculate the risk weighted probabilities your likely winnings increase by a dollar with every tail tossed, all the way to infinity.

Thus what the St. Petersburg Paradox argues is that the value to the gambler of the coin flipping game is infinite: it’s like owning a cash machine that continually replenishes itself. However, the paradox goes further – it asks that, if the value of the gamble is infinite what is the maximum stake that a rational person should be willing to bet on it? How much money is it worth paying for a cash machine that never runs out of money? The rational answer is, of course, that there is no maximum: any amount is less than the value of the machine.


En el post, se cita el siguiente trabajo, Moral Impossibility in the PetersburgParadox: A Literature Survey andExperimental Evidence


Comentario al Margen: en un post más reciente del Psy-Fi Blog, donde lamentablemente habla de la Economía como una pseudo-ciencia (me hizo acordar a Mario Bunge hablando del psicoanálisis), se cita un interesante paper sobre el uso y abuso del termino racionalidad por parte de los economistas. Rationality in Economics


Paper: Portfolio no a la Markowitz

Behavioral Portfolio Theory


We develop a positive behavioral portfolio theory and explore its implications for portfolio construction and security design. Portfolios within the behavioral framework resemble layered pyramids. Layers are associated with distinct goals and covariances between layers are overlooked. We explore a simple two-layer portfolio. The downside protection layer is designed to prevent financial disaster. The upside potential layer is designed for a shot at becoming rich. Behavioral portfolio theory has predictions that are distinct from those of meanvariance portfolio theory. In particular, behavioral portfolio theory is consistent with the reluctance to have short and margined positions, an inverse relation between the bond/stock ratio and portfolio riskiness, the existence of the home bias, the use of labels such as “growth” and “income,” the preference for securities with floors on returns, and the purchase of lottery tickets.
Link al Paper

números preferidos

The Psy-Fi Blog tiene un post sobre como se reflejan en el mercado financiero nuestras preferencias (o sesgos) por ciertos números redondos. Un buen compendio sobre el tema.

Quite why this happens is a source of much debate, although the main theory is that it’s something to do with our cognitive limitations. Perhaps it’s a retrieval problem – the easy availability of round numbers to our mental processes makes them attractive. Perhaps it’s an anchoring problem, where investors unconsciously anchor on easily available round numbers.

Aca estan los papers citados en la nota:

Round Numbers and Securities Returns

Culture and Stock Price Clustering: Evidence from The Peoples’ Republic of China

Price Clustering and Natural Resistance Points in the Dutch Stock Market: A Natural Experiment


Paper: Momentum y Deportes

Momentum and Sports Betting

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


Paper: Caracteristicas y Retornos

Characteristics, Affect, and Stock Returns

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


Paper: Crisis y Mercados Eficientes

Efficient Markets in Crisis

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


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

Fun & Finance


Fun & Finance Rollover

"It is hard to be finite upon an infinite subject, and all subjects are infinite." Herman Melville

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