Forum for Science, Industry and Business

Sponsored by:     3M 
Search our Site:

 

Stock graphs can mislead: People prefer stocks with shorter runs

24.09.2009
Can the way stock information is presented lead investors to make the wrong decisions? A new study in the Journal of Consumer Research shows that when investors use charts, they are likely to make a baseless decision about the riskiness of a stock based on its run-length.

Stock graphs are everywhere, available on financial and public websites to be loaded and customized by users. Authors Priya Raghubir (New York University) and Sanjiv R. Das (Santa Clara University) found that investors believe that stocks with shorter up-and-down movements are less risky than those with longer run-length. This is called the "run-length" effect.

They tested three groups—affluent Californians, undergraduates, and general investors—and found that all three judged a stock with a shorter run-length more favorably. They found that the run-length effect increases with greater education and frequency, length, and diversity of trading experience.

They conclude that because of the large amount of data presented on a graph, investors simplify their task by sampling points from a financial instrument's price history to estimate trend and noise. The sampling strategy leads to perceptual biases when the sample points are not representative of the price series.

The authors believe there are public policy implications that might lead to how data is presented because "systematic biases in risk perceptions may permeate the market uniformly, resulting in persistent biases in prices. . . From a consumer perspective, individual investors should be made aware of their biases in appraising and comparing stocks using charts."

"These results have implications for how financial information is communicated to investors," the authors write. The visual display of stock information has increased and the number of commercial purveyors of stock analysis information has mushroomed…From a public policy perspective, regulators should consider imposing guidelines about how financial information is presented to individuals, akin to mandatory labeling by the Food and Drug Administration (FDA).

Priya Raghubir and Sanjiv R. Das. " The Long and Short of It: Why Are Stocks with Shorter Runs Preferred?" Journal of Consumer Research: April 2010 (published online September 17, 2009).

Mary-Ann Twist | EurekAlert!
Further information:
http://www.wisc.edu

More articles from Studies and Analyses:

nachricht New study: How does Europe become a leading player for software and IT services?
03.04.2017 | Fraunhofer-Institut für System- und Innovationsforschung (ISI)

nachricht Reusable carbon nanotubes could be the water filter of the future, says RIT study
30.03.2017 | Rochester Institute of Technology

All articles from Studies and Analyses >>>

The most recent press releases about innovation >>>

Die letzten 5 Focus-News des innovations-reports im Überblick:

Im Focus: Making lightweight construction suitable for series production

More and more automobile companies are focusing on body parts made of carbon fiber reinforced plastics (CFRP). However, manufacturing and repair costs must be further reduced in order to make CFRP more economical in use. Together with the Volkswagen AG and five other partners in the project HolQueSt 3D, the Laser Zentrum Hannover e.V. (LZH) has developed laser processes for the automatic trimming, drilling and repair of three-dimensional components.

Automated manufacturing processes are the basis for ultimately establishing the series production of CFRP components. In the project HolQueSt 3D, the LZH has...

Im Focus: Wonder material? Novel nanotube structure strengthens thin films for flexible electronics

Reflecting the structure of composites found in nature and the ancient world, researchers at the University of Illinois at Urbana-Champaign have synthesized thin carbon nanotube (CNT) textiles that exhibit both high electrical conductivity and a level of toughness that is about fifty times higher than copper films, currently used in electronics.

"The structural robustness of thin metal films has significant importance for the reliable operation of smart skin and flexible electronics including...

Im Focus: Deep inside Galaxy M87

The nearby, giant radio galaxy M87 hosts a supermassive black hole (BH) and is well-known for its bright jet dominating the spectrum over ten orders of magnitude in frequency. Due to its proximity, jet prominence, and the large black hole mass, M87 is the best laboratory for investigating the formation, acceleration, and collimation of relativistic jets. A research team led by Silke Britzen from the Max Planck Institute for Radio Astronomy in Bonn, Germany, has found strong indication for turbulent processes connecting the accretion disk and the jet of that galaxy providing insights into the longstanding problem of the origin of astrophysical jets.

Supermassive black holes form some of the most enigmatic phenomena in astrophysics. Their enormous energy output is supposed to be generated by the...

Im Focus: A Quantum Low Pass for Photons

Physicists in Garching observe novel quantum effect that limits the number of emitted photons.

The probability to find a certain number of photons inside a laser pulse usually corresponds to a classical distribution of independent events, the so-called...

Im Focus: Microprocessors based on a layer of just three atoms

Microprocessors based on atomically thin materials hold the promise of the evolution of traditional processors as well as new applications in the field of flexible electronics. Now, a TU Wien research team led by Thomas Müller has made a breakthrough in this field as part of an ongoing research project.

Two-dimensional materials, or 2D materials for short, are extremely versatile, although – or often more precisely because – they are made up of just one or a...

All Focus news of the innovation-report >>>

Anzeige

Anzeige

Event News

Fighting drug resistant tuberculosis – InfectoGnostics meets MYCO-NET² partners in Peru

28.04.2017 | Event News

Expert meeting “Health Business Connect” will connect international medical technology companies

20.04.2017 | Event News

Wenn der Computer das Gehirn austrickst

18.04.2017 | Event News

 
Latest News

Wireless power can drive tiny electronic devices in the GI tract

28.04.2017 | Medical Engineering

Ice cave in Transylvania yields window into region's past

28.04.2017 | Earth Sciences

Nose2Brain – Better Therapy for Multiple Sclerosis

28.04.2017 | Life Sciences

VideoLinks
B2B-VideoLinks
More VideoLinks >>>