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Old 11-02-2007, 03:33 AM
ArturiusX ArturiusX is offline
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Join Date: Sep 2004
Posts: 9,762
Default Re: possible trading strategy?

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.
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