Avoid Bias In Alts Investing
Allocations by institutional investors to alternative investment classes have risen substantially during recent decades. By 2010, the 1,000 largest sponsors of public pension funds allocated on average more than 17% of their assets to alternatives, including 9% to venture capital...
A Life Full of Experiences May Not Mean Less Financial Security
A couple of weeks ago, I wrote a column about the growing tribe of people who value experiences over security in their lives. But there is something that I didn’t say then that I want to emphasize: You don’t necessarily...
A Stock Tip That Went Horribly Wrong
Of all the misinformation disseminated to investors, the most pernicious supports the belief that some “investment pro” or pundit has the skill to reliably pick outperforming stocks. This myth is perpetuated by endless blogs and television appearances by “gurus” touting...
The Influence of Recent Market Returns on the Risk Tolerance of Individual Investors (Part 2)
Last week, we examined a study that found investors’ risk tolerance fluctuates positively with recent market returns. This behavior is in direct conflict with rational economic theory, which dictates that when market returns become negative, wealth contracts and risk aversion...
‘Familiar’ Doesn’t Mean ‘Safe’
Behavioral finance is the study of human behavior and how that behavior leads to investment errors, including the mispricing of assets. Among the many behavioral biases well-documented in the literature is “local” bias—individual investors tend to invest more in stocks...
New Angles On Size Premium
Many investors and advisors who implement multifactor portfolios tend to focus on capturing the value premium over the size premium, often for the simple reason that, historically, the value premium has been larger. Others have even challenged the size premium’s...
The Influence of Recent Market Returns on the Risk Tolerance of Individual Investors
The recency effect—that the most recent observations have the largest impact on an individual’s memory and, consequently, on perception—is a well-documented cognitive bias. This bias could impact investment behavior if individuals focus only on the most recent returns and project...
