Post by ashliy on Feb 17, 2017 16:10:40 GMT
Why are investors infrequently shuffling their portfolio and why is this portfolio not diversified enough? How does one explain the gap in performance between equities and government bonds, which is sometimes obvious in the markets? Why does the dynamics of asset prices seem to be somehow predictable in specific time frames? How does one explain the episodes of market seasonability or the phenomenon of under-reaction to important news?
Empirical evidence has shown that investors do not behave, in most cases, in a rational way. So how can one study their behaviour? Behavioural finance theory rejects the efficiency of markets and, consequently, the idea that economic agents are perfectly rational and, therefore, carry out independent choices (as Keynes said: “People prefer to fail conventionally than to succeed unconventionally”). They also reject that arbitrage is capable of neutralising the price impact made by related irrational investors.
themarketmogul.com/lets-stop-pretending-people-rational/
Very good reveal. The illusion that one is being rational and logical is far more dangerous than just being irrational.
Empirical evidence has shown that investors do not behave, in most cases, in a rational way. So how can one study their behaviour? Behavioural finance theory rejects the efficiency of markets and, consequently, the idea that economic agents are perfectly rational and, therefore, carry out independent choices (as Keynes said: “People prefer to fail conventionally than to succeed unconventionally”). They also reject that arbitrage is capable of neutralising the price impact made by related irrational investors.
themarketmogul.com/lets-stop-pretending-people-rational/
Very good reveal. The illusion that one is being rational and logical is far more dangerous than just being irrational.
