Search results for "Behavioral Economics"
showing 10 items of 28 documents
Effects of Behavioural Finance on Emerging Capital Markets
2014
Abstract A recent common view of finance experts is that it is becoming increasingly difficult to understand how the economy as a whole works. Although the efficient market theory might be considered an ideal model enabling the interpretation of market behavior, it has begun to lose ground, and the rationality hypothesis failed to explain the excessive volatility of the returns and trading volume recorded on both developed capital markets and emerging ones. Adding the behavioral finance perspective to the equation can help us to understand better how market agents will react. In this article, we investigate the factors that may explain the trading volume evolution on two emerging capital ma…
Clusters of Traders in Financial Markets
2020
In this chapter we discuss Aoki’s work on the description of clusters of economic agents acting in a market. Specifically, we briefly discuss his work on the Ewens distribution and its application in a model of stock market with heterogeneous agents. We then review recent empirical analyses on the heterogeneity of financial market participants and make a working hypothesis for an empirical study on the distribution of the number of clusters of market participants in a real stock market monitored with a resolution down to the shadowed identity of market participants.
Why Is Equity Order Flow so Persistent?
2014
Order flow in equity markets is remarkably persistent in the sense that order signs (to buy or sell) are positively autocorrelated out to time lags of tens of thousands of orders, corresponding to many days. Two possible explanations are herding, corresponding to positive correlation in the behavior of different investors, or order splitting, corresponding to positive autocorrelation in the behavior of single investors. We investigate this using order flow data from the London Stock Exchange for which we have membership identifiers. By formulating models for herding and order splitting, as well as models for brokerage choice, we are able to overcome the distortion introduced by brokerage. O…
Abnormal Stock Market Returns Around Peaks in VIX: The Evidence of Investor Overreaction?
2016
Even though the VIX index was intended to be a measure of future volatility of the stock market, researchers argue that in reality VIX measures the investor sentiment. Anecdotal evidence suggests that peaks in VIX coincide with stock market bottoms followed by rallies, yet so far there have been no scientific evidence confirming this casual observation. In this paper we perform an event study of abnormal stock market returns around peaks in VIX and discuss our findings within the framework of behavioral finance theory. First of all, we detect peaks in VIX using formal turning-point identification procedures and provide detailed descriptive statistics of periods of rising and falling VIX. Th…
How Return Affects the Decision to Surrender a Savings Insurance Policy: Detailed Observations on the Reverse Disposition Effect
2020
The disposition effect has been widely studied in academia, while the reverse disposition effect observed in mutual funds has gained relatively little attention. This study examines the reverse disposition effect in detail by using policy-level data from a Finnish life insurer with a considerable sample size. The results show that the Finnish savings policies with a positive return have a surrender rate that is over 30 percent lower than that of policies with a negative return. Tax incentives and expected future returns do not seem to cause this reverse disposition effect directly. Salient information strengthens the reverse disposition effect, and higher policyholder age and surrender fees…
Why retail investors traded equity during the pandemic? An application of artificial neural networks to examine behavioral biases
2021
Behavioral biases are known to influence the investment decisions of retail investors. Indeed, extant research has revealed interesting findings in this regard. However, the literature on the impact of these biases on millennials' trading activity, particularly during a health crisis like the COVID-19 pandemic, as well as the equity recommendation intentions of such investors, is limited. The present study addressed these gaps by investigating the influence of eight behavioral biases: overconfidence and self-attribution, over-optimism, hindsight, representativeness, anchoring, loss aversion, mental accounting, and herding on the trading activity and recommendation intentions of millennials …
Financial literacy is not enough: The role of nudging toward adequate long-term saving behavior
2020
Abstract This paper analyzes whether nudging has a relevant effect on financially literate individuals, even if these individuals are professionals with extensive experience of finance and pensions. The paper presents the results of a field experiment with employees of a leading life and pensions company in Spain. The results of the experiment show that financial literacy and awareness of the importance of saving are not enough for individuals to act. Even with pension plan experts, the combination of two types of instruments is necessary: rational instruments, such as financial literacy and awareness of the economic implications of retirement, and nudging, which moves individuals to action…
Using protection motivation theory in the design of nudges to improve online security behavior
2019
Abstract We conducted an online experiment (n = 2024) on a representative sample of internet users in Germany, Sweden, Poland, Spain and the UK to explore the effect of notifications on security behaviour. Inspired by protection motivation theory (PMT), a coping message advised participants on how to minimize their exposure to risk and a threat appeal highlighted the potential negative consequences of not doing so. Both increased secure behavior – but the coping message significantly more so. The coping message was also as effective as both messages combined, but not so the threat appeal. Risk attitudes, age and country had a significant effect on behavior. Initiatives seeking to promote se…
(In)Efficiencies in Latin American ETFs
2017
Este estudio evalúa empíricamente la eficiencia en la valoración de varios ETFs latinoamericanos, expresada en desviaciones de sus precios de mercado frente a los valores liquidativos subyacentes. Se cuantifican tales ineficiencias y se implementa una estrategia de negociación verificada por regresiones basadas en el CAPM y el Modelo Fama-French. Los resultados discrepan con la Hipótesis de los Mercados Eficientes y son mejor explicados por aspectos de las finanzas comportamentales. Finalmente, se examina cómo las desviaciones influyen sobre la decisión de creación o redención de ETFs, mediante un análisis de regresión logística. Los resultados evidencian que los participantes autorizados r…
Measuring investor sentiment in the stock market
2011
Recently, investor sentiment measures have become one of the more widely examined areas in behavioral finance. A number of measures have been developed in the literature without having been fully validated, and therefore leaving in question which measure should be used for empirical exploration. The purpose of this study is to examine the relative performance of a number of popular measures in predicting stock returns and to test the relative efficacy of a hybrid approach. Using a panel of investor sentiment measures, we develop a new measure of sentiment which combines direct and indirect sentiment measures. Our results show that our composite sentiment index affects the returns of stocks …