Abstract
0
Highlights
The hot hand fallacy and the gambler’s fallacy are two of the most common behavioral errors in the financial market
In terms of investment strategy, we find that groups make investment decisions differently from individuals
In terms of the behavioral fallacies, we find that both groups and individuals alike are still prone to the hot hand fallacy and gambler’s fallacy, but groups are marginally less prone indicating that there is a mitigation effect by being in a group
Summary
The hot hand fallacy and the gambler’s fallacy are two of the most common behavioral errors in the financial market These biases cause people to misinterpret random sequences believing that some past event can be used to predict future outcomes. People who exhibit the hot hand fallacy expect an increasing trend to continue in the near future This bias is observable when people mostly buy from funds who were successful in the past because they are convinced it would continue to be successful in the latter periods (Sirri & Tufano, 1998). People who exhibit the gambler’s fallacy expect a current trend to ‘break and reverse’ in the future This bias is observable when people buy losing stocks, which are stocks who have recently declined in prices, because they expect a reversal of their losses later. It is unreliable to use past information to predict future prices
Sign-in/Register to view highlights & summary Sign-in/Register to access full text options 
Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have
Schedule a callDisclaimer: All third-party content on this website/platform is and will remain the property of their respective owners and is provided on "as is" basis without any warranties, express or implied. Use of third-party content does not indicate any affiliation, sponsorship with or endorsement by them. Any references to third-party content is to identify the corresponding services and shall be considered fair use under The CopyrightLaw.
