Beyond greed and fear : understanding behavioral finance and the psychology of investing

Even the best Wall Street investors make mistakes. No matter how savvy or experienced, all financial practitioners eventually let bias, overconfidence, and emotion cloud their judgement and misguide their actions. Yet most financial decision-making models fail to factor in these fundamentals of human nature. In __Beyond Greed and Fear__, the most authoritative guide to what __really__ influences the decision-making process, Hersh Shefrin uses the latest psychological research to help us understand the human behavior that guides stock selection, financial services, and corporate financial strategy. Shefrin argues that financial practitioners must acknowledge and understand behavioral finance--the application of psychology to financial behavior--in order to avoid many of the investment pitfalls caused by human error. Through colorful, often humorous real-world examples, Shefrin points out the common but costly mistakes that money managers, security analysts, financial planners, investment bankers, and corporate leaders make, so that readers gain valuable insights into their own financial decisions and those of their employees, asset managers, and advisors. According to Shefrin, the financial community ignores the psychology of investing at its own peril. __Beyond Greed and Fear__ illuminates behavioral finance for today's investor. It will help practitioners to recognize--and avoid--bias and errors in their decisions, and to modify and improve their overall investment strategies. Content: ""Contents"" ""Preface"" ""PART I: What Is Behavioral Finance?"" ""Chapter 1 Introduction"" ""Chapter 2 Heuristic-Driven Bias: The First Theme"" ""Chapter 3 Frame Dependence: The Second Theme"" ""Chapter 4 Inefficient Markets: The Third Theme"" ""PART II: Prediction"" ""Chapter 5 Trying to Predict the Market"" ""Chapter 6 Sentimental Journey: The Illusion of Validity"" ""Chapter 7 Picking Stocks to Beat the Market"" ""Chapter 8 Biased Reactions to Earnings Announcements"" ""PART III: Individual Investors"" ""Chapter 9 “Get-Evenitisâ€?: Riding Losers Too Long"" ""Chapter 10 Portfolios, Pyramids, Emotions, and Biases""""Chapter 11 Retirement Saving: Myopia and Self-Control"" ""PART IV: Institutional Investors"" ""Chapter 12 Open-Ended Mutual Funds: Misframing, “Hot Hands, â€? and Obfuscation Games"" ""Chapter 13 Closed-End Funds: What Drives Discounts?"" ""Chapter 14 Fixed Income Securities: The Full Measure of Behavioral Phenomena"" ""Chapter 15 The Money Management Industry: Framing Effects, Style “Diversification, â€? and Regret"" ""PART V: The Interface between Corporate Finance and Investment"" ""Chapter 16 Corporate Takeovers and the Winner's Curse""""Chapter 17 IPOs: Initial Underpricing, Long-term Underperformance, and “Hot-Issueâ€? Markets"" ""Chapter 18 Optimism in Analysts' Earnings Predictions and Stock Recommendations"" ""PART VI: Options, Futures, and Foreign Exchange"" ""Chapter 19 Options: How They're Used, How They're Priced, and How They Reflect Sentiment"" ""Chapter 20 Commodity Futures: Orange Juice and Sentiment"" ""Chapter 21 Excessive Speculation in Foreign Exchange Markets"" ""Final Remarks"" ""Notes"" ""References"" ""Credits"" ""Index"" ""A"" ""B"" ""C""""d"" ""e"" ""f"" ""g"" ""h"" ""i"" ""j"" ""k"" ""l"" ""m"" ""n"" ""o"" ""p"" ""r"" ""s"" ""t"" ""u"" ""v"" ""w"" ""y"" ""z"" Contents 8 Preface 10 PART I: What Is Behavioral Finance? 36 Chapter 1 Introduction 38 Chapter 2 Heuristic-Driven Bias: The First Theme 48 Chapter 3 Frame Dependence: The Second Theme 58 Chapter 4 Inefficient Markets: The Third Theme 68 PART II: Prediction 78 Chapter 5 Trying to Predict the Market 80 Chapter 6 Sentimental Journey: The Illusion of Validity 94 Chapter 7 Picking Stocks to Beat the Market 104 Chapter 8 Biased Reactions to Earnings Announcements 126 PART III: Individual Investors 140 Chapter 9 “Get-Evenitis”: Riding Losers Too Long 142 Chapter 10 Portfolios, Pyramids, Emotions, and Biases 154 Chapter 11 Retirement Saving: Myopia and Self-Control 174 PART IV: Institutional Investors 192 Chapter 12 Open-Ended Mutual Funds: Misframing, “Hot Hands,” and Obfuscation Games 194 Chapter 13 Closed-End Funds: What Drives Discounts? 210 Chapter 14 Fixed Income Securities: The Full Measure of Behavioral Phenomena 228 Chapter 15 The Money Management Industry: Framing Effects, Style “Diversification,” and Regret 248 PART V: The Interface between Corporate Finance and Investment 260 Chapter 16 Corporate Takeovers and the Winner's Curse 262 Chapter 17 IPOs: Initial Underpricing, Long-term Underperformance, and “Hot-Issue” Markets 274 Chapter 18 Optimism in Analysts' Earnings Predictions and Stock Recommendations 292 PART VI: Options, Futures, and Foreign Exchange 306 Chapter 19 Options: How They're Used, How They're Priced, and How They Reflect Sentiment 308 Chapter 20 Commodity Futures: Orange Juice and Sentiment 324 Chapter 21 Excessive Speculation in Foreign Exchange Markets 334 Final Remarks 344 Notes 346 References 368 Credits 386 Index 394 A 394 B 394 C 395 D 395 E 396 F 396 G 397 H 397 I 397 J 398 K 398 L 398 M 399 N 399 O 400 P 400 R 401 S 401 T 402 U 403 V 403 W 403 Y 403 Z 403 Why Do Most Financial Decision-making Models Fail To Factor In Basic Human Nature? This Guide To What Really Influences The Decision- Making Process Applies Psychological Research To Stock Selection, Financial Services And Corporate Financial Strategy, Using Real-world Examples. Heuristic-driven Bias -- Frame Dependence -- Inefficient Markets --trying To Predict The Market -- Sentimental Journey : The Illusion Of Validity -- Picking Stocks To Beat The Market -- Bias Reactions To Earnings Announcements -- Get-evenitis : Riding Losers Too Long -- Portfolios, Pyramids, Emotions, And Biases -- Retirement Savings : Myopia And Self-control -- Open-ended Mutual Funds : Misframing, Hot Hands, And Obfuscation Games -- Close-end Funds : What Drives Discounts? -- Fixed Income Securities : The Full Measure Of Behavioral Phenomena -- The Money Management Industry : Framing Effects, Style, Diversification, And Regret -- Corporate Takeovers And The Winner's Curse -- Ipos : Initial Underpricing, Long-term Underperformance, And Hot-issue Markets -- Optimism In Analysts' Earnings Predictions And Stock Recommendations -- Options : How They're Used, How They're Priced, And How They Reflect Sentiment -- Commodity Futures : Orange Juice And Sentiment -- Excessive Speculation In Foreign Exchange. Hersh Shefrin. Originally Published: Boston : Harvard Business School Press, C2000. Includes Bibliographical References And Index. "In Beyond Greed and Fear, the most authoritative guide to what really influences the decision-making process, Hersh Shefrin uses the latest psychological research to help us understand the human behavior that guides stock selection, financial services, and corporate financial strategy."--BOOK JACKET. "According to Shefrin, the financial community ignores the psychology of investing at its own peril. Beyond Greed and Fear illuminates behavioral finance for today's investor. It will help practitioners to recognize - and avoid - bias and errors in their decisions, and to modify and improve their overall investment strategy."--BOOK JACKET. A guide to what influences the decision-making process, this book uses psychological research to help us understand the human behaviour that guides stock selection, financial services, and corporate financial strategy. It helps practitioners to recognize - and avoid - bias and errors in their decisions, and to improve their investment strategies. This book provides a comprehensive treatment of behavioral finance for a practitioner audience. With the use of the latest psychological research, Shefrin helps us to understand the human behaviour that guides stock selection, financial services, and corporate financial strategy. Wall $treet Week with Louis Rukeyser panelist Frank Cappiello once explained that because of a "change in psychology," but "no change in fundamentals," he altered his stance on the market from positive to neutral.