STA Monthly Meeting – June 2015
Since the 1960s cognitive psychology has demonstrated many apparently unrelated ‘heuristics’ that lead to cognitive errors. Behavioural Finance, which is the study of how these errors affect financial decisions, has developed rapidly since its start in the early 1990s, but it remains an unstructured area of research and the effects of some of the heuristics seem to contradict each other.
Dr Anderson surveys the most important heuristics with some surprising examples and relates them to how investors think. He will also cover in detail why we might expect these heuristics to weigh particularly heavily on the decisions of financial analysts and fund managers.
- We don’t think how we think we think – examples
- Information processing problems: Forecasting errors, Overconfidence, Conservatism, Sample size neglect, Representativeness, Availability
- Biased decision making: Framing, Mental Accounting, Regret Avoidance, Prospect Theory
- Experts’ decisions: Historical examples, Configural processing, Economic forecasts
- Analysts’ forecasts: Over-optimism, Herding, Career concerns
- Fund managers: Groupthink, Short-termism, Benchmarks, Career concerns
Dr Keith Anderson worked in systems development for some years, latterly at Deutsche Bank in Frankfurt, before becoming interested in finance as a private investor. He is currently a Lecturer in Finance at the York Management School, University of York.
Next STA Meeting
STA Monthly Meeting – October 2023
The main reason for ineffective strategy construction which leads to non-reproducible results in real time and hence inconsistent performance is due to not knowing the 3 critical strategy stats. To overcome this challenge and construct sustainable, scalable and reproducible strategies in a quantitative manner, the Smart Money Framework was developed by the quants in the 1960s. With this framework we will have the 3 critical stats to help us construct optimal entries, stop loss and exits. When this is further combined with volume, our probability of capturing the bigger runners increases. All of the above will be explained further in detail by the presenter.
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