Behavioral finance and market efficiency
Why real investors depart from the models built to describe them. These guides cover the biases documented in brokerage records and academic studies, the efficient market hypothesis and the evidence against it, and what decades of scorecards show about active management.
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Behavioral finance biases every investor should know, with real examples
Ten documented biases, each shown through a real case rather than a definition, from overconfident traders to the 52-week high.
11.4%
annual return of the most active households, against 17.9% for the market
74%
abnormal return to companies that added .com to their name in 1998 and 1999
Prospect theory: Kahneman and Tversky's experiments, the value function and the fourfold pattern
The 1979 gambles and how people answered them, the value and weighting functions, the 1992 parameters, the fourfold pattern, lottery stocks and the 2020 replication in 19 countries.
Anchoring bias: how one number moves stock prices, forecasts and deals
From the 1974 wheel of fortune to the 52-week high, takeover bids, analyst forecasts and listing prices, with what the replications found and what reduces the effect.
Loss aversion: why losses hurt more than gains, with real examples
Where the figure of 2 comes from, why recent meta-analyses put it lower, and what it does to investors who sell winners and keep losers.
Active vs passive investing: what the evidence shows, and why investors keep ignoring it
Sharpe's arithmetic, 25 years of scorecards, the fee gap, and the behavioral reasons money still chases active funds.
The efficient market hypothesis, and why its own creator shared a Nobel with his biggest critic
Fama's three forms of market efficiency, the anomalies that resist them, and why the 2013 Nobel went to both sides of the argument.
Behavioural finance: why rational markets were never the whole story
How the field grew from a set of awkward experimental results into the counterweight to the efficient market hypothesis.