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Behavioral biases and investor performance

Author

Listed:
  • Feldman, Todd

    (Finance Department, San Francisco State University, San Francisco, CA, 94122)

Abstract

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.

Suggested Citation

  • Feldman, Todd, 2011. "Behavioral biases and investor performance," Algorithmic Finance, IOS Press, vol. 1(1), pages 45-55.
    • Handle: RePEc:ris:iosalg:0005
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    Citations

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    Cited by:

    1. Todd Feldman & Gabriele Lepori, 2016. "Asset price formation and behavioral biases," Review of Behavioral Finance, Emerald Group Publishing Limited, vol. 8(2), pages 137-155, November.
    2. Sophie Steelandt & Marie-Hélène Broihanne & Amélie Romain & Bernard Thierry & Valérie Dufour, 2013. "Decision-Making under Risk of Loss in Children," PLOS ONE, Public Library of Science, vol. 8(1), pages 1-10, January.

    More about this item

    Keywords

    Behavioral finance; agent-based models; financial markets;
    All these keywords.

    JEL classification:

    • C10 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - General

    Statistics

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