Research confirms investor personalities affect markets just as much as economic forces
January 2010
Behaviour is a mix of who we are, and what environment we are in,
according to Greg Davies of Barclays Wealth. He explains:
‘When we refer to a person as being “bullish” or “bearish” on an investment, we generally mean they believe it will rise or fall. This usually implies the person has researched the prospects of the investment, and come to some sort of conclusion. However, it may also be that some people are consistently more “bullish” or “bearish” than others, regardless of the asset in question or point in the market cycle.
Using data derived from a unique collaboration with Barclays Stockbrokers, we are able to reveal what drove individuals’ expectations at different points over the last year. You may well have formed many similar expectations in relation to your own investments. This allows us to view how each investor’s views change through the volatile financial environment, and more interestingly, how they do not change.
Our key findings are that:
- everyone’s expectations are affected by common factors, i.e., a general change in market sentiment;
- but individuals are consistently optimistic and pessimistic relative to one another;
- this optimism affects our investing decisions. Pessimists tend to miss out on rallies due to conservatism, whilst optimists may become “irrationally exuberant” during them; and
- a second opinion, from a friend or advisor, could help reduce the negative effects of these personal biases, and improve behaviour.
For further details, click here.
See also Greg Davies's article 'Optimal behaviour' in Caritas, issue 17, April 2009.
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