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 Disarray in the brain
18.12.2017 | Universität zu Lübeck

nachricht Amputees can learn to control a robotic arm with their minds
28.11.2017 | University of Chicago Medical Center

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: Error-free into the Quantum Computer Age

A study carried out by an international team of researchers and published in the journal Physical Review X shows that ion-trap technologies available today are suitable for building large-scale quantum computers. The scientists introduce trapped-ion quantum error correction protocols that detect and correct processing errors.

In order to reach their full potential, today’s quantum computer prototypes have to meet specific criteria: First, they have to be made bigger, which means...

Im Focus: Search for planets with Carmenes successful

German and Spanish researchers plan, build and use modern spectrograph

Since 2016, German and Spanish researchers, among them scientists from the University of Göttingen, have been hunting for exoplanets with the “Carmenes”...

Im Focus: First-of-its-kind chemical oscillator offers new level of molecular control

DNA molecules that follow specific instructions could offer more precise molecular control of synthetic chemical systems, a discovery that opens the door for engineers to create molecular machines with new and complex behaviors.

Researchers have created chemical amplifiers and a chemical oscillator using a systematic method that has the potential to embed sophisticated circuit...

Im Focus: Long-lived storage of a photonic qubit for worldwide teleportation

MPQ scientists achieve long storage times for photonic quantum bits which break the lower bound for direct teleportation in a global quantum network.

Concerning the development of quantum memories for the realization of global quantum networks, scientists of the Quantum Dynamics Division led by Professor...

Im Focus: Electromagnetic water cloak eliminates drag and wake

Detailed calculations show water cloaks are feasible with today's technology

Researchers have developed a water cloaking concept based on electromagnetic forces that could eliminate an object's wake, greatly reducing its drag while...

All Focus news of the innovation-report >>>

Anzeige

Anzeige

Event News

See, understand and experience the work of the future

11.12.2017 | Event News

Innovative strategies to tackle parasitic worms

08.12.2017 | Event News

AKL’18: The opportunities and challenges of digitalization in the laser industry

07.12.2017 | Event News

 
Latest News

Single-photon detector can count to 4

18.12.2017 | Information Technology

Quantum memory with record-breaking capacity based on laser-cooled atoms

18.12.2017 | Physics and Astronomy

How much soil goes down the drain -- New data on soil lost due to water

18.12.2017 | Agricultural and Forestry Science

VideoLinks
B2B-VideoLinks
More VideoLinks >>>