Presentation Title

Emotional Investing: The Disregard of Statistics and Reliance on Hypotheticals

Faculty Mentor

Lisardy Velasco

Start Date

17-11-2018 3:00 PM

End Date

17-11-2018 5:00 PM

Location

CREVELING 12

Session

POSTER 3

Type of Presentation

Poster

Subject Area

behavioral_social_sciences

Abstract

Common negative psychological traits such as hubris, irrationality, and fear of regret heavily plague investors throughout the financial world. Psychological fear of losing capital was predicted to magnify losing trades (even among professionals) because of a theory formulated by Hersh Shefrin and Meir Statman known as the Disposition Effect (Garvey 36), showcasing that the woe of loss outweighs rational evaluation of data yielding excessive amounts of lost capital. A study regarding behavioral finance conducted by Terrance Odean PhD., as well as ill-advised positions taken by investing legends Warren Buffett and Bill Ackman, prove that human emotion and intuition often outweigh statistical evidence. Positions are able to be thoroughly analyzed upon exiting the trade; the overwhelming concern with investors is the incessant emotional bias rationalizing their financial decisions. Both Buffett and Ackman allowed a sense of hubris and daunting pressure to inhibit their judgement yielding massive, irrational losses (Stempel, Jonathan)(Wieczner, Jen) . A study evaluating ten-thousand retail trading accounts likewise, exhibited a large proportion of irrational losses stemming from inexcusable lapses of psychological judgement (Odean 1775). Statistical data provides a correlation between losses being realized over a longer time frame than that of winning trades; this phenomenon (retail and professionals alike) exhibits an unnecessary amount of money lost on account of emotional error that perhaps computers would not succumb to. Studies and historical examples prove our hypothesis regarding the hindrance of emotional bias within human trading, consequently becoming less adequate in generating profits compared to algorithmic trading programs.

This document is currently not available here.

Share

COinS
 
Nov 17th, 3:00 PM Nov 17th, 5:00 PM

Emotional Investing: The Disregard of Statistics and Reliance on Hypotheticals

CREVELING 12

Common negative psychological traits such as hubris, irrationality, and fear of regret heavily plague investors throughout the financial world. Psychological fear of losing capital was predicted to magnify losing trades (even among professionals) because of a theory formulated by Hersh Shefrin and Meir Statman known as the Disposition Effect (Garvey 36), showcasing that the woe of loss outweighs rational evaluation of data yielding excessive amounts of lost capital. A study regarding behavioral finance conducted by Terrance Odean PhD., as well as ill-advised positions taken by investing legends Warren Buffett and Bill Ackman, prove that human emotion and intuition often outweigh statistical evidence. Positions are able to be thoroughly analyzed upon exiting the trade; the overwhelming concern with investors is the incessant emotional bias rationalizing their financial decisions. Both Buffett and Ackman allowed a sense of hubris and daunting pressure to inhibit their judgement yielding massive, irrational losses (Stempel, Jonathan)(Wieczner, Jen) . A study evaluating ten-thousand retail trading accounts likewise, exhibited a large proportion of irrational losses stemming from inexcusable lapses of psychological judgement (Odean 1775). Statistical data provides a correlation between losses being realized over a longer time frame than that of winning trades; this phenomenon (retail and professionals alike) exhibits an unnecessary amount of money lost on account of emotional error that perhaps computers would not succumb to. Studies and historical examples prove our hypothesis regarding the hindrance of emotional bias within human trading, consequently becoming less adequate in generating profits compared to algorithmic trading programs.