Behavioral Finance Careers

I am strongly interested in behavioral finance.As a finance grad student and B.A.economics holder,which career path is most appropriate for me?I think trading might fit well.What are your suggestions?

 

Most of the behavioral finance managers are more quantitative/systematic. Academic literature in behavioral finance is extremely data driven. Places like Fuller & Thaler, and LSV are essentially implementing what you find in behavioral finance papers - which involves a lot of programming and data mining.

The JPMorgan Asset Mgmt HBS case basically outlined a couple of quantitative funds and a marketing gimmick for private wealth clients.

 

First off, behavioural trading and investing are completely different animals.

You seem to talking about value investing, there are plenty of books on the topic, the most prevalent being 'The Intelligent Investor' by Benjamin Graham.

Behavioural trading is based on indicators such as RSI, Trin, Confidence Index, Put/call ratio or Short interest.

"The power of accurate observation is commonly called cynicism by those who have not got it." - George Bernard Shaw
 
jmayhem:
First off, behavioural trading and investing are completely different animals.

You seem to talking about value investing, there are plenty of books on the topic, the most prevalent being 'The Intelligent Investor' by Benjamin Graham.

Behavioural trading is based on indicators such as RSI, Trin, Confidence Index, Put/call ratio or Short interest.

I would argue that 'behavioral trading' is based on a trend-following approach rather than using a bunch of indicators randomly.

 
Best Response
Macro <span class=keyword_link><a href=/resources/skills/trading-investing/arbitrage target=_blank>Arbitrage</a></span>:
jmayhem:
First off, behavioural trading and investing are completely different animals.

You seem to talking about value investing, there are plenty of books on the topic, the most prevalent being 'The Intelligent Investor' by Benjamin Graham.

Behavioural trading is based on indicators such as RSI, Trin, Confidence Index, Put/call ratio or Short interest.

I would argue that 'behavioral trading' is based on a trend-following approach rather than using a bunch of indicators randomly.

Use the indicators to gauge market sentiment, extrapolate the trend, trade. Pretty simple.

"The power of accurate observation is commonly called cynicism by those who have not got it." - George Bernard Shaw
 

JM: Interesting. Thanks for the clarification. Do you know how different funds apply these concepts? Or what preferences exist for the period of time in which the stocks are understood to be held to reach maximum value?

I know that Buffett is understood to be a value investor, but he also seems to be interested in holding stocks for at least a 10 year period. I dont know how applicable that is to short term fluctuations, or how profitable a strategy based off of short term fluxes would be (like an expected increase in sales that could be sustained for a couple of years, but not more).

Thanks

“...all truth passes through three stages. First, it is ridiculed. Second, it is violently opposed. Third, it is accepted as being self-evident.” - Schopenhauer
 

JM: Indicators only account for past events. How would you apply them to something which youre predicting, but which isn't accounted for by the general market (i.e. the downgrade)?

“...all truth passes through three stages. First, it is ridiculed. Second, it is violently opposed. Third, it is accepted as being self-evident.” - Schopenhauer
 
seabird:
JM: Indicators only account for past events. How would you apply them to something which youre predicting, but which isn't accounted for by the general market (i.e. the downgrade)?

That's exactly you use price action to gauge market sentiment, not a RSI overbought/ oversold or divergence signal. Prices were tanking and that's all you need to know.

 

how many of you people have read a research paper on behavioral finance- or even a wikipedia entry? First, you're reasoning is just the basic philosophy of general business in a nutshell- anticipating future needs and capitalizing on it. That's what every single business entails- whether its trading securities or setting up a seaside restaurant.

Second, behavioral finance is an academic field that is a subset of behavioral economics. It has nothing to do with trend following or any specific trading strategy. Behavioral economics is basically an attempt to explain why classical economics (rational self-interest) doesn't seem to hold true in the real world (e.g. poor people voting republican). Behavioral finance is a subset of that that deals more with explaining why another subset of classical economics (efficient markets) doesn't seem to hold true in the financial world (e.g. contagion/panic in financial markets that cause valuations to be drastically different the underlying value for long periods of time). The reason its called "behavioral" is because it discusses the behavior (psychology) of the economic agents (people, investors) to explain the economic anomaly. ( Note the difference between "explaining" and "predicting"!

As for "behavioral trading", I have no idea what that means. A previous poster seems to say that it is a euphemism for technical analysis- very well then.

 

Seigniorage: The issue Im having is that it doesn't seem to me that most trading is based off of analysis of the actual value of the companies, or expected future value. One strategy for trading, for example, that was being described by James Altucher was buying any stock that had fallen in price for four days, and then selling after two days. ( http://blogs.wsj.com/financial-adviser/2010/02/11/a-simple-way-to-beat-… ). Back tested '92, this has produced pretty sizable returns. This, of course, doesn't tell us next to anything about the price of the stocks except that people more often than not sold stocks for less than they were worth just a couple days afterwards (and with only a couple of days in between, they were probably sold without any news coming out). So it seems to me that if this strategy for instance is so successful, then many stocks would not be traded on a value basis. They would be traded on some other basis. I'm new to this though, would those other basis' be accounting for potential future losses? That seems very odd to me.

“...all truth passes through three stages. First, it is ridiculed. Second, it is violently opposed. Third, it is accepted as being self-evident.” - Schopenhauer

Career Advancement Opportunities

March 2024 Investment Banking

  • Jefferies & Company 02 99.4%
  • Goldman Sachs 19 98.8%
  • Harris Williams & Co. (++) 98.3%
  • Lazard Freres 02 97.7%
  • JPMorgan Chase 03 97.1%

Overall Employee Satisfaction

March 2024 Investment Banking

  • Harris Williams & Co. 18 99.4%
  • JPMorgan Chase 10 98.8%
  • Lazard Freres 05 98.3%
  • Morgan Stanley 07 97.7%
  • William Blair 03 97.1%

Professional Growth Opportunities

March 2024 Investment Banking

  • Lazard Freres 01 99.4%
  • Jefferies & Company 02 98.8%
  • Goldman Sachs 17 98.3%
  • Moelis & Company 07 97.7%
  • JPMorgan Chase 05 97.1%

Total Avg Compensation

March 2024 Investment Banking

  • Director/MD (5) $648
  • Vice President (19) $385
  • Associates (86) $261
  • 3rd+ Year Analyst (13) $181
  • Intern/Summer Associate (33) $170
  • 2nd Year Analyst (66) $168
  • 1st Year Analyst (202) $159
  • Intern/Summer Analyst (144) $101
notes
16 IB Interviews Notes

“... there’s no excuse to not take advantage of the resources out there available to you. Best value for your $ are the...”

Leaderboard

1
redever's picture
redever
99.2
2
BankonBanking's picture
BankonBanking
99.0
3
Betsy Massar's picture
Betsy Massar
99.0
4
Secyh62's picture
Secyh62
99.0
5
GameTheory's picture
GameTheory
98.9
6
dosk17's picture
dosk17
98.9
7
DrApeman's picture
DrApeman
98.9
8
CompBanker's picture
CompBanker
98.9
9
kanon's picture
kanon
98.9
10
numi's picture
numi
98.8
success
From 10 rejections to 1 dream investment banking internship

“... I believe it was the single biggest reason why I ended up with an offer...”