Re: possible trading strategy?
 

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Oh, and if you have any other group psych related papers, send em over, these kinds of research papers I read for fun.

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You might find The Socionomics Institute interesting. Also, Robert Prechter's work on the Elliot Wave and Fibonacci principles is interesting, but (IMO) difficult to apply. He recently co-authored an article in The Journal of Behavioural Finance

Re: possible trading strategy?
 

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Something I read recently is somewhat related to this, and interested me a great deal. It's called the disposition effect - here's a link if you are as intrigued by group psych as I am. It describes investors' tendency to sell appreciated securities quicker and to hold onto losers longer, otherwise known as "get back to even-itis".

The original paper (which I am too lazy to find now) demonstrated an abnormal rate of return is achievable by buying stocks that have a positive earnings surprise and substantial pre-release appreciation. Conversely, they sold stocks after negative earnings surprise that have substantial pre-release depreciation.

Now, this study was done a while ago and extensively covered by the markets, so I expect most of it to not work very well anymore... but this is human psychology we're talking about, and there must be inefficiencies everywhere related to this phenomenon.

Anyone tailor a strategy around this, or a variation?

Oh, and if you have any other group psych related papers, send em over, these kinds of research papers I read for fun.

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Retail investors that trade on news make up such a small portion of the market, I think the system sucks.

Re: possible trading strategy?
 

IIRC, the research paper found the effect among most pro money managers too... Although you would assume they would be trained against this sort of thing, they are subject to the same failings as the retail guys.

Either way, the study measured real rates of return, and it produced significant gains at the time of the test, so it worked then.

Re: possible trading strategy?
 

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IIRC, the research paper found the effect among most pro money managers too... Although you would assume they would be trained against this sort of thing, they are subject to the same failings as the retail guys.

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Money managers are concerned about something different though. I'll give you a hint: the end of the quarter creates weirdness.

Re: possible trading strategy?
 

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Money managers are concerned about something different though. I'll give you a hint: the end of the quarter creates weirdness.


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Praise the Lord and pass the amunition!! I love this trait of the Mutual Fund managers. Used it on Halloween to sell off some stocks at a profit and am getting back into two of them today.

Jimbo

Re: possible trading strategy?
 

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You might find The Socionomics Institute interesting.

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I've worked on some papers with Prechter, Dan Gough, Wayne Parker, et al at the Socionomics Insitute, and I can tell you for sure that they're bright guys and very dedicated. I'm a bit of an EMT guy and tend to disagree with many of their viewpoints insofar as they explain market behavior... but alot of their working papers are *very* interesting.