27. Trading and Investment Strategies in Behavioral Finance

  1. H. Kent Baker and
  2. Victor Ricciardi
  1. John M. Longo CFA

Published Online: 1 MAR 2014

DOI: 10.1002/9781118813454.ch27

Investor Behavior: The Psychology of Financial Planning and Investing

Investor Behavior: The Psychology of Financial Planning and Investing

How to Cite

Longo, J. M. (2014) Trading and Investment Strategies in Behavioral Finance, in Investor Behavior: The Psychology of Financial Planning and Investing (eds H. K. Baker and V. Ricciardi), John Wiley & Sons, Inc., Hoboken, NJ, USA. doi: 10.1002/9781118813454.ch27

Author Information

  1. Clinical Professor of Finance and Economics, Rutgers Business School—Newark and New Brunswick, and Chief Investment Officer, the MDE Group, Inc.

Publication History

  1. Published Online: 1 MAR 2014
  2. Published Print: 31 JAN 2014

ISBN Information

Print ISBN: 9781118492987

Online ISBN: 9781118813454

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Keywords:

  • behavioral finance;
  • investment anomalies;
  • investment strategy;
  • trading strategies;
  • trends in behavioral finance

Summary

The chapter describes investment and trading strategies rooted in behavioral finance that historically have generated superior profits. The failure of traditional finance models, such as those based on purely rational behavior, to explain how markets work has enabled behavioral finance to become mainstream among practitioners. Most investors are fraught with behavioral biases and their investment performance reflects this unfortunate fact. However, hope exists for those seeking to improve investment performance. Investment analysts will become akin to doctors analyzing the vast complexity of the human genome. An individual may be susceptible to a specific disease based on his or her genetic makeup, but something, such as an environmental trigger, must activate it. Similarly, successful investment analysts should examine not only the fundamental and technical aspects of securities but also the behavioral factors that ultimately influence their market prices.