Behavioral biases and investor performance

Todd Feldman ()
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Todd Feldman: Finance Department, San Francisco State University, San Francisco, CA, 94122

Algorithmic Finance, 2011, vol. 1, issue 1, 45-55

Abstract: Research indicates that individual investors trade excessively and underperform the market indices, Barber and Odean 2000). The purpose of this paper is to help explain which behavioral biases, if any, can explain this result using a simulation approach. Results indicate that putting too much weight on the current environment, anchoring, is the largest factor in explaining individual investor underperformance. In addition, loss aversion is the largest factor to explain excessive trading. When these two biases are combined trading activity and underperformance are heightened.

Keywords: Behavioral finance; agent-based models; financial markets (search for similar items in EconPapers)
JEL-codes: C10 (search for similar items in EconPapers)
Date: 2011
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Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:ris:iosalg:0005

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