A Paradigm for Quantitative Behavioral Finance

With increasing evidence challenging the efficient market hypothesis, there is a need for a unified methodology capable of quantifying the various, sometimes conflicting, effects suggested by behavioral finance. A paradigm for quantifying these effects is presented in this article. The authors revie...

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Bibliographic Details
Published in:The American behavioral scientist (Beverly Hills) 2011-08, Vol.55 (8), p.1014-1034
Main Authors: Caginalp, G., DeSantis, M.
Format: Article
Language:English
Subjects:
Behavior
Behavioral economics
Behavioural economics
Data analysis
Efficient markets
Finance
Financial analysis
Heuristic
Heuristics
Markets
Methodology
Modelling
Money supply
New York
Paradigms
Prices
Research trends
Stock exchange
Stock exchanges
Stock Markets
Studies
U.S.A
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Summary:With increasing evidence challenging the efficient market hypothesis, there is a need for a unified methodology capable of quantifying the various, sometimes conflicting, effects suggested by behavioral finance. A paradigm for quantifying these effects is presented in this article. The authors review recent studies of large-scale New York Stock Exchange (NYSE) data modeling the daily price change and formulate an augmented version of the methodology in which the impact of and over- or underreaction to news announcements are considered. Variables that are more difficult to consider, such as the “affect heuristic,” are also considered within the context of this theory.
ISSN:0002-7642
1552-3381
DOI:10.1177/0002764211412356