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Behavioral biases and investor performance

Wed, 30 May 2012 07:37:33 GMT

Research indicates that individual investors trade excessively and underperform the market indices, Barber and Odean (2000). The purpose of this paper is to help explain which behavioral biases, if any, can explain this result using a simulation approach. Results indicate that putting too much weight on the current environment, anchoring, is the largest factor in explaining individual investor underperformance. In addition, loss aversion is the largest factor to explain excessive trading. When these two biases are combined trading activity and underperformance are heightened.

  • Content Type Journal Article
  • Pages 45-55
  • DOI 10.3233/AF-2011-005
  • Authors
    • Todd Feldman,

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