One wonders why the sudden movement of the market from one end to another, or why markets may decline in the face of good and bad news on the rise? It sounds crazy, right?
Well, often the stock market movements are based on new information, such as corporate earnings reports or rebates … markets are often driven by investor sentiment. Psychological factors affect not only the average investor, but also professional fund managers who are often driven by greed, euphoria and fear!
Behavioral Finance
Believe it or not, there is a legitimate field of study that attempts to quantify the impact of emotions, psychology and behavior of investment and financial decisions – called behavioral finance.
Behavioral finance teaches us that just as the stock market runs in cycles up and down markets work well for themselves, “the cycle of market emotions.” Interestingly, these cycles tend to move in tandem.
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January 18th, 2012
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