Over the past two decades, a panoply of behavioral finance research has been devoted to exploring the trading patterns of behavior and trading performance of individual and institutional investor categories over time and across exchanges. In fact, this intriguing research topic is of considerable interest to academic scholars and market practitioners alike, because it has great academic value and practical implications for industry. Specifically, capturing the trading pattern and investment performance of each investor group within a particular country can cast light on some worthwhile issues such as market composition, information transmission, asset price formation, and market efficiency and liquidity.
Due, in part, to the information asymmetry evidenced between institutional investors and individual investors (e.g., Alangar et al., 1999; Lin et al., 2007; Duong et al., 2009), each group is more likely to have its unique characteristics. In their 2008 study, Kaniel et al. point out that institutional investors are by and large perceived to be better-informed rational traders, and to have a rather long-term investment perspective. In contrast, individual investors are generally viewed as unsophisticated traders, who prefer short-term investment horizons and are deeply involved in making sentiment-driven investment decisions based on their own cognitive biases.
On the other hand, researchers working in the area of behavioral finance distinguish between two acknowledged trading patterns premised on investors' reactions to the past price movements of stocks. The first pattern of behavior is labeled as momentum investing or positive feedback trading, in which investors purchase (sell) a stock in anticipation of a further rise (d...
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...kes (2011) report significant evidence that all three investor types – especially insurers – are more contrarian when selling than buying, which suggests that investors are reluctant to realize losses, in conformity with the evidence presented by Grinblatt and Keloharju (2001) and Odean (1998).
More recently, Phansatan et al. (2012) examine the Stock Exchange of Thailand (SET) and find that individual and institutional investors appear to be contrarian traders as opposed to foreign investors who are shown to be positive feedback traders. Interestingly, the trading strategies of institutions in the Thai stock market lead to very inferior security section, and thus very poor overall trading performance. On the other hand, the trading behavior of individual investors brings about gains from security section, but their poor market timing counterbalances these gains.
Mutual-fund managers generally rely on some variation of the two classic schools of stock analysis: fundamental and technical. Fundamental analysis relies on information such as economic supply and demand, and the company's financial health. These investors use information such as annual growth rate, earnings records, and key ratios to make decisions and focus on consistent, steady growth. Alternatively, technical analysis focuses more on the study of timing, price fluxuation, and investor sentiment. A common method of technical analysis is the usage of a chart of the stock’s price history to predict market sentiment and stock price trends.
Since this theory was formulated it was continuously challenged towards the reality through event studies that examined its applicability to the stock market. In this paper, the development and nature of the EMH will be discussed focusing on publications that examined the market to test for the three levels on market efficiency.
Before playing the stock market game, I honestly had no idea about how the stock market work. I, however, have learned so much about the process of the stock market. It was an advantage to learn how to buy and sell stocks without losing any thing, that will indeed enable me to invest in the real stock market without any concern. I learned that there is no certainty about wining or losing; however, there are many factors that we should consider before buying or selling stocks. One of theses factors is follow the daily news about the firm that you are willing to buy its stocks. Following the history of the firm transactions is also a significant factor that must be considered. The level of stability
There are four major market structures; perfect competition, monopolistic competition, oligopoly, and monopoly. Perfect competition is the market structure in which there are many sellers and buyers, firms produce a homogeneous product, and there is free entry into and exit out of the industry (Amacher & Pate, 2013). A perfect competition is characterized by the fact that homogeneous products are being created. With this being the case consumers have no tendency to buy one product over the other, because they are all the same. Perfect competitions are also set up so that there is companies are free to enter and leave a market as they choose. They are allowed to do with without any type of restriction, from either the government or the other companies. This structure is purely theoretical, and represents and extreme end of the market structure. The opposite end of the market structure from perfect competition is monopoly.
We analyzed the market for two weeks to determine when the equity market would turn from a bearish to bullish market. Without a change in the market and a declining bond price, we decided to invest in equities according to our investment strategy, which brought us into the second phase of our portfolio. Therefore, at the beginning of February we bought shares in Sirius, Microsoft, Neon, Washington Mutual, and Nike. As assumed, the equity market continued to plummet decreasing the value of all our stocks except for our Gold Corporation stock.
The Tapese people are going through a change of market structures between perfect competition to a monopoly. The transition from a perfect competition to a monopoly would bring a lot of changes, so it is not surprising that they noticed changes in the quality of the corn and the prices. In a market of perfect competition, competition between corn farmers would be high. The more producers there are, the more competition exist in a market, which means that producers must lower prices in order to stay in the market, especially since they are all selling the same variety of corn. Once these producers decided to start selling to the Mega Company, they no longer had the power to set the price.
Measures of Market Concentration Market concentration describes the extent to which the top firms in an industry, say in the car industry where the top five firms in the UK would account for nearly 90% of the market, take up a large portion of the market share. There are various methods used to measure this, which will be discussed in turn. ‘The concentration ratio is the percentage of all sales contributed by the leading three or five, say, firms in a market.’ (Maunder, P. et al (1991) p561) So the concentration ratio can be calculated by using the cumulative share of the first three or five firms according to their sales revenue share, summarised in the following equation: CRk= SSi , i=1…
One reason is that many successful investment ventures itself is the outcome of these ‘irrationality’. Risk-taking, which is inevitable in investment, may contribute to the investors’ better performance than others, while with the assistance of proper training, assessment accuracy can be increased(Palich and Ray Bagby, 1995). Also, if without precedent, most of the newly-invented value-maximising approaches or strategy of investment ought to be considered as crude and unthoughtful, but in reality, they are regarded as innovation(Busenitz and Barney, 1997). Furthermore, there are evidence shows that instead of being the hindrance of correct investment decision-making, those biases and heuristics are backed up by probabilistic information. Accurate statistical probability can be evaluated by our inductive reasoning mechanism with a relatively high possibility(Cosmides and Tooby,
AutoEdge is facing crisis since millions of its automobiles has had to be recalled due to product quality issues. Many things should be considered in order to implement a proactive response to rectify the situation. As the research analysis, I have been tasked will helping to rebuild AutoEdge’s reputation as well as to reduce and control operating costs. When making any decision on implementing change within the organization market analysis must look at the market structure of the organization. Market structure is made up of the relationship that exists between buyers, sellers, competition, product differentiation, and ease of entry into and exit from the market. The article “Review of Market Structure” (n.d.) defines market structure as the “microeconomic characteristics of different markets” and include such elements as competition level, high versus low entry barriers, and scale (Review of Market Structure, n.d.) To make the decision the decision to relocate, AutoEdge must analysis and evaluate of market structure. This report will discuss the four different types of market structures: monopoly, oligopoly, monopolistic competition, and pure competition. Additionally, it will outline the type of market structure AutoEdge fits into, how that market structure impacts the level of competition, elasticity of demand, price, and position in the industry.
There is a sense of complexity today that has led many to believe the individual investor has little chance of competing with professional brokers and investment firms. However, Malkiel states this is a major misconception as he explains in his book “A Random Walk Down Wall Street”. What does a random walk mean? The random walk means in terms of the stock market that, “short term changes in stock prices cannot be predicted”. So how does a rational investor determine which stocks to purchase to maximize returns? Chapter 1 begins by defining and determining the difference in investing and speculating. Investing defined by Malkiel is the method of “purchasing assets to gain profit in the form of reasonably predictable income or appreciation over the long term”. Speculating in a sense is predicting, but without sufficient data to support any kind of conclusion. What is investing? Investing in its simplest form is the expectation to receive greater value in the future than you have today by saving income rather than spending. For example a savings account will earn a particular interest rate as will a corporate bond. Investment returns therefore depend on the allocation of funds and future events. Traditionally there have been two approaches used by the investment community to determine asset valuation: “the firm-foundation theory” and the “castle in the air theory”. The firm foundation theory argues that each investment instrument has something called intrinsic value, which can be determined analyzing securities present conditions and future growth. The basis of this theory is to buy securities when they are temporarily undervalued and sell them when they are temporarily overvalued in comparison to there intrinsic value One of the main variables used in this theory is dividend income. A stocks intrinsic value is said to be “equal to the present value of all its future dividends”. This is done using a method called discounting. Another variable to consider is the growth rate of the dividends. The greater the growth rate the more valuable the stock. However it is difficult to determine how long growth rates will last. Other factors are risk and interest rates, which will be discussed later. Warren Buffet, the great investor of our time, used this technique in making his fortune.
I became an enthusiast of finance ever since I was at high school. At the political economy class, my teacher asked us: if you have a million RMB, how would you use it? She then introduced us the concept of investment, and I was intrigued specifically by the stock. For the latter two years of my high school, I have been reading books and articles regarding the stock market in the U.S. and in China. As one of the outstanding students ranked top 1% in College Entrance Exam in Hainan Province, China, I was accepted by the City University of Hong Kong with a full scholarship. With the strong interest in finance, I chose quantitative finance and risk management as my major.
...s have shown that humans are risk averse, and they value loss more than gains from a bet, which means that wealth shows diminishing marginal utility.
... the public and private sector. It uses both the weak form and semi strong from to make decisions. When an investor is given both public and private information the investor would not be able to profit about the average investor even if he was provided with new information at any given time. These investors are given name such as insiders, exchange specialist, analyst and money mangers. Insiders are senior managers that have access to inside information of that company. The security exchange commission prohibits that allow of inside information use to achieve abnormal returns on investments. An exchange specialist can achieve above average returns with specific order information on a specific equity. Analysts can analyze whether an analyst opinion can help an investor achieve above average returns. Institutional money mangers work handle mutual funds and pensions.
Market Efficiency In simple Microeconomics, market efficiency is the unbiased estimate of the actual value of the investment. The stock price can be greater than or less than its true value till the time these deviations are arbitrary. Market efficiency also states that even though an investor has got any kind of precise inside information, they will be unable to beat the market. Fama (1988) defines three levels of market efficiency.
The 4 market structures in relation to the benefits and costs to the consumer and producer