c
  


  
 
Behavioral finance
O  
  
   @


d


 



 

  


   d

 


 J  

also known as Äidiot trades´ - stock

traders whose decisions to buy, sell, or
hold are irrational and prone to
judgement and decision-making errors.

How do small individual investors trade

stocks and how do they think about their
own equity portfolios?
 
  

. Discovering naive patterns in the past

price movements;

2. Sharing popular models of value;

3. Lack of proper diversification of equity

portfolios;

4. Irrational trading decisions.

 J
 
 






º Ñ To spot trends and turning points

Judgement errorsÑ
‰ extrapolation bias ± expecting
continuation of past market trends
‰ perception of the likely variability of
the future stock prices
 ]
    

‰ Sharing mental frames ± common

perception of investment options
popularized in media, tips from friends
and recommendations from financial
advisors.
‰ ood stocks vs. good companies
‰
avouring familiar gambles
 0 

 

Diversification allows
for higher returns
without having to
accept higher risk.

‰ Illusion of control - ‰ ost investors are

ÄI don¶t gamble, I underdiversified.
take calculated
risk.´ ‰ ÄPyramid model´
]
  
 î
 

 

‰ Disposition effect - Investors tend to

realize gains on past winner stocks and
avoid realizing losses - tax ineficiency.

‰ Investors tend to trade shares on

impuls without prior planning.
º