How Representativeness, Familiarity, And Social Interactions Are Convoluted

I have learned that prices can rise or fall quickly and unexpectedly, and there are low-risk and high-risk stocks in the stock market. Share prices can change quickly and dramatically, because they are based on supply and demand. For example, if more people want to sell their stocks than buy them, the prices of the stocks will fall. This is important to take into consideration, because you do not

As Chapter 10 questions, if further evidence continues to surface that capital markets do not always behave in accordance with the efficient market hypothesis, then should we reject the research that has embraced the EMH as a fundamental assumption? In this regard we can return to earlier chapters of this book in which we emphasised that theories are abstractions of reality. Capital markets are made of individuals and as such it would not (or perhaps, should not) be surprising to find that the

Investing behavior should be driven by information, analysis, and self-discipline, not by emotion or ‘hunch.’

Financial Assets: Robert Shiller, a Noble Prize winner in Economics, has the belief that our cultural and psychological thoughts influence our financial behavior. Shiller highlights the key factors of the irrational exuberance that exists in the financial market. In his book, Irrational Exuberance, he argues that investors often make irrational decisions. Throughout the book, he explains that there are twelve factors that impact the market behavior from 1995 to 2005 and that eventually led to a financial bubble. Some of these factors can be linked to the Black Thursday of 1929.

Before my introduction to the world of finance, I had relatively little understanding of how the market works and how it affects the global economy. So for my financial algebra class, I had to complete a financial portfolio and follow a stock of my choice and report on it. I learned how to interpret stock tickers and 5 day SMA’s in order to aid in my reports and be able to provide a thorough analysis of what was going with the stock I was following, Samsung Electronics. From that point forth I could adequately predict how certain events could be favorable or detrimental to a stock and be able to communicate that analysis in a report. Furthermore, I then had to summarize what had happened during that week and give a type of forecast as for whether or not it would be best to sell or invest in the stock I was tracking. By the end of the project, I gained a more comprehensive understanding of the inner workings of the world of finance and the role it plays worldwide. Thus making me a more versatile and globally prepared citizen, adequately prepared to tackle the world's problems from a new angle: the world of

The stock market is a risky business. Investing can make you wealthy beyond your wildest dreams, in which only a few investors have found the formula. Otherwise making the wrong decision

In my nonfiction outside reading novel, Unshakeable, Tony Robbins is a wonderful mentor and teacher of your personal investment. As a newcomer into the investment realm, Robbins was able to navigate and help the reader grasp the knowledge of the stockbroker side of the stock market. While learning the basic terminology of a bear vs bull stock, I furthered my comprehension and am considering entering the hectic stock exchange. With Robbins wisdom and experiences he preaches during “a 10-year period, the market almost always rises. Still there are no guarantees” (Robbins 128). This broaden my perspective as I would give up and call it quits not getting my way losing money and not thinking about a rebound. As it fluctuates the “average, the

Analysts and experts have different opinions about what you should do in volatile markets, and how to scope with stock market volatility or the tendency for share prices rising and falling.

It was previously assumed that economic investors and regulators (agents) utilised all available information and thus market prices were a reflection of this information with assets representing their fundamental value, encouraging the position that agents’ actions were rational. The 2007-2008 Global Financial Crisis (GFC) is posited to have originated from the notion that all available information was utilised, causing agents to fail to thoroughly investigate and confirm “the true values of publicly traded securities,” leading to a failure to register the presence of an asset price bubble preceding the GFC (Ball 2009).

This document is authorized for use only by Yen Ting Chen in FInancial Markets and Institutions taught by Nawal Ahmed Boston University from September 2014 to December 2014.

criteria in which they are fit to represent their established population. While this is true,

After reading chapter 10, I think that another way to define representativeness heuristic could be looking at information and making a judgement based on part of that information, but not based on any facts. Also, I think this is largely making assumptions and predictions that generally are not correct, simply due to preexisting thoughts and beliefs. I think that an example of this that is not mentioned in this chapter could be if a person is driving and they hit several green lights in a row, they may predict the next time they drive they will hit all red lights. In reality, there is no actual way to predict if you will hit a red or green light, this is just something you deal with as it comes, and it does not matter what occurred previously.

There is a sense of complexity today that has led many to believe the individual investor has little chance of competing with professional brokers and investment firms. However, Malkiel states this is a major misconception as he explains in his book “A Random Walk Down Wall Street”. What does a random walk mean? The random walk means in terms of the stock market that, “short term changes in stock prices cannot be predicted”. So how does a rational investor determine which stocks to purchase to maximize returns? Chapter 1 begins by defining and determining the difference in investing and speculating. Investing defined by Malkiel is the method of “purchasing assets to gain profit in the form of reasonably

In his book, Capital Ideas: The Improbable Origins of Modern Wall Street, Peter L. Bernstein examines the innovative financial work of various academics that helped shape modern Wall Street. Bernstein sets out to show that Wall Street is in fact a fundamental and useful model to follow, rather than something to be feared. He points out that, “By combining the linkage between risk and reward with the combative nature of the free market, these academics brought new insights into what Wall Street is all about and devised new methods for investors to manage their capital.” (2) These impressive scholars have incorporated scientific measurement to the art of finance, forever

Gittman (2004, pp. 312) divided stock into two types, such as common stock and preferred stock. He also showed that dividends are the outcome of investment. So, common stocks are an ownership claim against primarily real or productive asset (Higgins, 1995), but he also said that if the company prospers, stockholders are the chief beneficiaries, if it falters, they are the chief losers. Smith (1988) presented that stocks are one of the most popular forms of investment. People buy stocks for various reasons: some are interested in the long-term growth of their investment by buying low priced stock of a new company in the hope of substantially growth of share price over the next few years. Another reason he suggested that in a well established firm stockholders expect the stock growth will be stable over the long run. (Smith,1988).