Stock Markets: Difference between revisions
New page: == DISTRACTION == One very important aspect of behavioral finance in the stock market is the affect that distraction plays on the consumers. It causes stock prices to underreact to news o... |
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When it comes to investing, the age of the investor plays a role in the tendencies of the investor. The affect that age has on an investors decision making has almost everything to do with experience. It is assumed that age and experience go hand in hand. Younger investors tend to expect higher returns than older, more experienced investors. This is most likely due to the fact that although the older investors have probably had success at one point or another, they have also experienced disappointment, so they are more realistic with expectations. Younger investors are also known as “trend-chasers” because they are more influenced by a stock that has trend upward for a while, and more turned away from a declining stock. This is especially true when it comes to tech stocks. Part of the explanation for the fascination younger investors have with tech stocks is attributed to the fact that they tend to be more aware, and interested in the most recent technology. They are quick to jump on an upward trending tech stock. Another factor that contributes to the difference in stock market decisions between the experienced and non-experienced is the concern that the younger investors have about their career, if their career is in fact in this field. They make decisions with the fear of having to hold their job, and prove themselves hanging over their heads. Although there is no significant difference in the way the less experienced handle common occurrences such as earnings reports, they have a harder time handling bubbles and crashes. Since many of the younger ones have yet to handle either of those issues, when they happen, they struggle to maintain performance with the investors that have been through it before. | When it comes to investing, the age of the investor plays a role in the tendencies of the investor. The affect that age has on an investors decision making has almost everything to do with experience. It is assumed that age and experience go hand in hand. Younger investors tend to expect higher returns than older, more experienced investors. This is most likely due to the fact that although the older investors have probably had success at one point or another, they have also experienced disappointment, so they are more realistic with expectations. Younger investors are also known as “trend-chasers” because they are more influenced by a stock that has trend upward for a while, and more turned away from a declining stock. This is especially true when it comes to tech stocks. Part of the explanation for the fascination younger investors have with tech stocks is attributed to the fact that they tend to be more aware, and interested in the most recent technology. They are quick to jump on an upward trending tech stock. Another factor that contributes to the difference in stock market decisions between the experienced and non-experienced is the concern that the younger investors have about their career, if their career is in fact in this field. They make decisions with the fear of having to hold their job, and prove themselves hanging over their heads. Although there is no significant difference in the way the less experienced handle common occurrences such as earnings reports, they have a harder time handling bubbles and crashes. Since many of the younger ones have yet to handle either of those issues, when they happen, they struggle to maintain performance with the investors that have been through it before. | ||
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Revision as of 23:26, 1 May 2007
DISTRACTION
One very important aspect of behavioral finance in the stock market is the affect that distraction plays on the consumers. It causes stock prices to underreact to news or signals about the future success of a company. The main reason for traders to get distracted from these details is the news on other stocks and industries. On days that there are many announcements being made throughout the market, stock prices for a specific company tend not to be affected as much as they would with announcements that are made on relatively quiet days in the market. Investors tend to react more to news regarding a firm when made during trading hours, as opposed to when the market is closed. This is attributed to the distractions of the individuals personal life. Fridays often have more distraction than the days earlier in the week due to the upcoming weekend. Investors also tend to be more attentive to stocks when things are going good in an up market, and less attentive when they believe there is not as much money to be made. One of the proving factors that investors get distracted is the fact that a firm can re-release news reports that have already been made public, and the stock shifts accordingly. The problem of attention that exists with many investors cause them to overlook many economically related firms when they follow one firm. Underreaction of stock prices is a result of investor’s inability to focus on multiple things at once, and a lack of the necessary time for devoting sufficient attention.
AGE RELATED BEHAVIOR IN THE STOCK MARKET
When it comes to investing, the age of the investor plays a role in the tendencies of the investor. The affect that age has on an investors decision making has almost everything to do with experience. It is assumed that age and experience go hand in hand. Younger investors tend to expect higher returns than older, more experienced investors. This is most likely due to the fact that although the older investors have probably had success at one point or another, they have also experienced disappointment, so they are more realistic with expectations. Younger investors are also known as “trend-chasers” because they are more influenced by a stock that has trend upward for a while, and more turned away from a declining stock. This is especially true when it comes to tech stocks. Part of the explanation for the fascination younger investors have with tech stocks is attributed to the fact that they tend to be more aware, and interested in the most recent technology. They are quick to jump on an upward trending tech stock. Another factor that contributes to the difference in stock market decisions between the experienced and non-experienced is the concern that the younger investors have about their career, if their career is in fact in this field. They make decisions with the fear of having to hold their job, and prove themselves hanging over their heads. Although there is no significant difference in the way the less experienced handle common occurrences such as earnings reports, they have a harder time handling bubbles and crashes. Since many of the younger ones have yet to handle either of those issues, when they happen, they struggle to maintain performance with the investors that have been through it before.
