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Questions tagged [behavioral-finance]

Behavioral finance aims to understand and analyze the effects human behavior has when it interacts with financial markets.

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Volatility clustering and Behavioral Finance, possible explanation

Currently studying about time series modelling of financial data and faced the known GARCH$(p,q)$ model for modelling volatility. We observe that big changes are followed by large changes and vice ...
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132 views

Utility functions, are they used in the real world by hedge funds, banks, etc?

I am starting to study mathematical finance. When I studied microeconomics and macroeconomics I studied utility functions, but I never saw how they are in the real world. I do not see how they can be ...
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Behavioral SDF: modelling sentiment risk premium

With reference to Behavioral Asset Pricing models, I know that the discount factor (or required rate of return) is equal to: Discount rate = Risk-free rate + Fundamental risk premium + Sentiment ...
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Understanding Dividend Payout on Yahoo Finance

Let's use TLT as an example, which pays out dividends on the first day of the month. Question 1: From the screenshot of TLT below (taken on March 1 2018), can you tell whether the dividend has been ...
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Idiosyncratic Volatility

I calculate monthly idiosyncratic volatility as the standard deviation of residuals of a Fama-French regression on daily returns. Now assume that within these daily returns there is a price hike due ...
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1answer
176 views

Are the causes of momentum uniform for various asset classes?

Is there any theory which is able to unify and/or falsify existing explanations on the causes of asset price/return momentum? The prevailing theory is that behavioral and cognitive biases lead to ...
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1answer
607 views

Sharpe Ratio versus Cumulative Returns

I was asked whether Sharpe Ratio was a better measure than Cumulative Returns, in the context of hedge funds. To me, personally, Sharpe Ratio is a more important measure. By definition, it tells us ...
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989 views

What are the main market anomalies/inefficiencies detected in quantitative finance?

I wondered about the existence of a complete list of the anomalies detected in quantitative finance. Generally, a market anomaly or inefficiency is a asset price and/or rate of return distortion on a ...
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2k views

What are the main market efficiency measures in the stock market?

I'm going to test for the effect of the change in market efficiency on the stock market portfolio, and, I want to know what are the main measures known in the academic literature in order to compare ...
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Is it possible that some types of financial systems can resonate?

Financial systems can certainly be modeled using the same tools physicists use to model dynamic physical systems. The validity of such is evidenced by models such as that developed by Black and ...
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1answer
623 views

How to implement the herding measure proposed by Lakonishok et. al (1992) in python

I would like to test for herding behaviour using the herding measure developed by Lakonishok et. al (1992) on a dataset containing trader transactions during 2013, however, i am having some trouble ...
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888 views

Is Behavioral Finance relevant to quants?

This topic has been prompted by the following question: Measuring Behavioral Finance Effects in Fund/Portfolio Manager Analysis After reading it and the comments below I started thinking whether ...
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Individual/casual investors and the bias towards blue-chip stocks?

There's quite a bit of research (example, [1]) teasing out the fact that home/casual/individual investors prefer stocks with large positive skewness. It surprised me, as I was reading a bunch of these ...
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903 views

Measuring Behavioral Finance Effects in Fund/Portfolio Manager Analysis

I want to know if there are some standardized measures to evaluate how irrationally human a portfolio manager is. Are there any performance measures or scorings for behavioral finance effects? How "...
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290 views

How to measure investors' “experienced” volatility?

In asset allocation, you usually send reports to your clients where you will report the volatility of its portfolio. Assuming you only have monthly returns, you will compute volatility over a ...