Support our online development, and advance our onground research initiatives in free market economics, as we seek to showcase the brightest Next-Gen minds.
THE ME-P DISCLAIMER: Posts, comments and opinions do not necessarily represent iMBA, Inc., but become our property after submission. Copyright © 2006 to-date. iMBA, Inc allows colleges, universities, medical and financial professionals and related clinics, hospitals and non-profit healthcare organizations to distribute our proprietary essays, photos, videos, audios and other documents; etc. However, please review copyright and usage information for each individual asset before submission to us, and/or placement on your publication or web site. Attestation references, citations and/or back-links are required. All other assets are property of the individual copyright holder.
Some say it does!
By Arthur Chalekian GEPC
[Financial Consultant]
Some experts say it does. In 1985, Werner DeBondt, currently a professor of finance at DePaul University, and Richard Thaler, currently a professor of behavioral science and economics at the University of Chicago, published an article titled, Does The Stock Market Overreact?
Professor Speak
The professors were among the first economists to study behavioral finance, which explores the ways in which psychology explains investors’ behavior. Classic economic theory assumes all people make rational decisions all the time and always act in ways that optimize their benefits. Behavioral finance recognizes people don’t always act in rational ways, and it tries to explain how irrational behavior affects markets.
Research
DeBondt and Thaler’s research, which has been explored and disputed over the years, supported the idea that markets tend to overreact to “unexpected and dramatic news and events.” The pair found people tend to give too much weight to new information. As a result, stock markets often are buffeted by bouts of optimism and bouts of pessimism, which push stock prices higher or lower than they deserve to be.
***
***
In a recent memo, Oaktree Capital’s Howard Marks reiterated his long-held opinion, “…In order to be successful, an investor has to understand not just finance, accounting, and economics, but also psychology.” He makes a good point.
Assessment
When markets become volatile, it’s a good idea to remember the words of Benjamin Graham, author of The Intelligent Investor, who wrote, “By developing your discipline and courage, you can refuse to let other people’s mood swings govern your financial destiny. In the end, how your investments behave is much less important than how you behave.”
Conclusion
Your thoughts and comments on this ME-P are appreciated. Feel free to review our top-left column, and top-right sidebar materials, links, URLs and related websites, too. Then, subscribe to the ME-P. It is fast, free and secure.
Speaker: If you need a moderator or speaker for an upcoming event, Dr. David E. Marcinko; MBA – Publisher-in-Chief of the Medical Executive-Post – is available for seminar or speaking engagements. Contact: MarcinkoAdvisors@msn.com
OUR OTHER PRINT BOOKS AND RELATED INFORMATION SOURCES:
- PRACTICES: www.BusinessofMedicalPractice.com
- HOSPITALS: http://www.crcpress.com/product/isbn/9781466558731
- CLINICS: http://www.crcpress.com/product/isbn/9781439879900
- ADVISORS: www.CertifiedMedicalPlanner.org
- FINANCE: Financial Planning for Physicians and Advisors
- INSURANCE: Risk Management and Insurance Strategies for Physicians and Advisors
- Dictionary of Health Economics and Finance
- Dictionary of Health Information Technology and Security
- Dictionary of Health Insurance and Managed Care
8
***
Share this:
Filed under: Investing, Portfolio Management | Tagged: Arthur Chalekian, behavioral finance, DOES THE STOCK MARKET OVER-REACT?, Richard Thaler, Werner DeBondt |
The Leading Business Education Network for Doctors, Financial Advisors and Health Industry Consultants 
Leave a comment