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Market Psychology & Behavioural Finance

3 terms

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Market Psychology & Behavioural Finance

Market Sentiment

The prevailing attitude of investors toward a market or security, independent of its fundamentals.

Test: measured by proxies such as put-call ratios, volatility indices, survey data, fund flows and new issue activity qualitative Market Psychology & Behavioural Finance

Mental Accounting

Treating money differently depending on its source or intended use, rather than as fungible.

Test: identical amounts are treated differently according to which mental category they occupy qualitative Market Psychology & Behavioural Finance

Myopic Loss Aversion

The tendency to evaluate a long-term portfolio too frequently, magnifying the felt pain of short-term losses.

Test: the probability of observing a loss rises sharply as the evaluation interval shortens, while the underlying investment is unchanged qualitative