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Stock-Market Psychology

Hardback

Stock-Market Psychology

How People Value and Trade Stocks

9781840647365 Edward Elgar Publishing
The late Karl-Erik Wärneryd, formerly Professor Emeritus of Economic Psychology, Stockholm School of Economics, Sweden
Publication Date: 2001 ISBN: 978 1 84064 736 5 Extent: 352 pp
The book focuses on the way in which investors process information and form expectations about future gains. It argues that humans fall short of the perfect information processing required by theory, and that their expectations are based on more than just future company earnings.

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The rationale behind how people value and trade stocks is of unparalleled interest to governments, companies and other participants in stock markets.

The book focuses on the way in which investors process information and form expectations about future gains. It argues that humans fall short of the perfect information processing required by theory, and that their expectations are based on more than just future company earnings.

Karl-Erik Wärneryd discusses the psychology of investing, providing detailed coverage of how financial expectations are formed, how complex decisions are made and how emotions and influence from others affect the financial decisions of individuals. Empirical studies featured in the book suggest that many, if not most, stockholders have long-term goals, believe in certain stocks, and make few transactions – behavior which, argues the author, may have a stabilizing influence upon stock prices.

As a unique overview of how investors process information and build up expectations of future gains on stocks, this fascinating book will be welcomed by students of, and researchers in, economic psychology and behavioral finance. Stock-Market Psychology will also be invaluable to practitioners of finance who wish to learn more about the psychology behind financial transactions.
Critical Acclaim
‘As usual, Wärneryd has carefully made sure that the inter-disciplinary perspective rests upon a solid foundation with respect to the latest research and classical work. . . very stimulating reading. Stock-Market Psychology aims at bridging the gap between researchers in behavioral finance (and economics) and economic-oriented psychologists. . . Apart from providing important analytical tools, the book should stimulate future research and perhaps bring researchers in (behavioral) finance and psychology together in mutual projects on investor behavior.’
– Patric Andersson, Ekonomisk Debatt

‘Finance has long been dominated by the model of the economic man, the investor who rationally processes expectations and information, then translates this data into asset prices. Within the past decade or so, however, the continued presence of market inefficiencies and stock return anomalies has stimulated the development of a subspecialty known as behavioral finance. This book is a thoughtful and exceptionally well documented examination of this emerging area. . . Though scholarly, the book is not overly technical and is a significant improvement over the many popular books in the area. For graduate students, graduate-educated professionals in banking and finance, and business school professionals.’
– S.P. Ferris, Choice

‘Stock-Market Psychology gives an excellent overview of the state-of-the-art literature on this subject in the fields of economics, psychology and finance. . . a comprehensive overview of the behavior of investors in the stock market. As such, this book is valuable for the classroom. . . Stock-Market Psychology provides researchers with numerous ideas for future research and readers with useful and fun tips without taking away our hopes of ever becoming rich from investing in stocks. What more is there to ask from a book?’
– Joost M.E. Pennings, Journal of Economic Psychology

‘George Goodman ("Adam Smith") once wrote, “you can find out who you are by investing in the stock market, but it will be an expensive lesson”. It is far smarter and cheaper to read Wärneryd’s book instead. At a time when global stock markets are driven by emotions and passions, and are highly volatile, Chapter Six will tell you why, far better than a hundred analysts’ reports.’
– Shlomo Maital, TIM-Technion Institute of Management and the Samuel Neaman Institute for Advanced Studies in Science and Technology, Israel
Contents
Contents: Preface Introduction 1. Efficient Markets and Rational Models of Portfolio Choice 2. Behavioral Considerations in Financial Markets 3. Expectation Formation 4. Decision Making, Uncertainty, and Risk Attitudes 5. Cognitive Bias, (Simple) Heuristics, and Mental Accounts 6. Emotionality, Motivation, Self-Control, and Investment 7. Social Influence 8. Some Behavioral Data on Investors 9. Investor Groups and Market Segements 10. Implications and Some Further Thoughts on Private Investing References Index
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