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The Psychology of World Equity Markets
The International Library of Critical Writings in Economics Series 187
Mainstream financial economics has largely ignored the complex cognitive and motivational factors that guide investor trading decisions and that influence the structure and dynamics of world equity markets. Research shows, however, that investor psychology is reliably linked to predictable momentum and reversals in stock prices and, more generally, to stock market bubbles. The first volume reviews the scientific debate between leading behavioral scientists and proponents of rational markets and rational economic man. It also summarizes key elements of a new psychological theory of stock prices with special emphasis on the formation of investor beliefs and the quality of judgment. The articles in the second Volume support the behavioral approach with international evidence collected from many sources. Major anomalies in financial decision-making and in the behavior of equity markets are interpreted in the context of new experimental, empirical, and theoretical research.
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What Reviewers Are Saying
'This marvellous collection features both breadth and depth, describing the psychology that affects retail investors and professional investors world wide, in their behaviour both as individuals and in crowds.' -- Hersh Shefrin, Santa Clara University, US 'In little over a decade the behavioural finance approach to understanding markets has risen to challenge the mathematical models that have provided the mainstay of finance theory since the 1950s. This fascinating collection of papers documents an intellectual revolution, from its beginnings in the systematization of biases in individual and collective decision making, through the demonstration of these biases in the financial markets, to the formulation of coherent people-centred theories of investment. If you want to understand how and why amateur investors misinterpret information, why professional analysts make bad forecasts, why bubbles and crashes happen, and why some stock prices are sometimes predictable, the answers are here.' -- Roy Batchelor, Cass Business School, London, UK