Up: 1:1

Behavioral biases and investor performance

Todd Feldman

Algorithmic Finance (2011), 1:1, 45-55
DOI: 10.3233/AF-2011-005

Published: Abstract, PDF.
Archived: SSRN.

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.

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Philip Maymin

University of Bridgeport

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Jayaram Muthuswamy

Kent State University

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Kenneth J. Arrow

Stanford University

Herman Chernoff

Harvard University

David S. Johnson

AT&T Labs Research

Leonid Levin

Boston University

Myron Scholes

Stanford University

Michael Sipser

Massachusetts Institute of Technology

Richard Thaler

University of Chicago

Stephen Wolfram

Wolfram Research

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Peter Bossaerts

California Institute of Technology

Emanuel Derman

Columbia University

Ming-Yang Kao

Northwestern University

Pete Kyle

University of Maryland

David Leinweber

Lawrence Berkeley National Laboratory

Richard J. Lipton

Georgia Tech

Avi Silberschatz

Yale University

Robert Webb

University of Virginia

Affiliate Editors

Giovanni Barone-Adesi

University of Lugano

Bruce Lehmann

University of California, San Diego

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