Book Written In 1688, Earliest Known Recording Of Markets, Shows Investor Behavior Hasn't Changed Much

Friday, January 25, 2013 08:00
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Book Written In 1688, Earliest Known Recording Of Markets, Shows Investor Behavior Hasn't Changed Much

Tags: behavioral finance | investor behavior | markets

Finance professor Teresa Corzo of Madrid says that investor behavior hasn’t really changed much since the 17th century. A researcher at the new Universidad Pontificia focuses on behavioral finance.
 
A book published in 1688 that is believed to be the earliest recording of the workings of a stock market serves as the basis of her assessment.

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The book discusses how the volatility of the markets can cause changes in the behavior of buyers and sellers as well as the speculative aspects of traded securities.
 
Behavioral finance kept popping into the minds of the professor and her colleagues as they read it.
 
Behavioral tendencies including overconfidence, regret, loss aversion, and herd tendencies were displayed as prevalently by investors described in the book as they are today.
 
Excessive trading, overreaction, underreaction, and the tendency to sell winners and hold on to losers were all observed.
 
The book illustrates that, even with enormous changes in technological and scientific advances, investor behavior has not changed.
 
Corzo says the book shows that behavioral finance is important to study and should be a focus for financial advisors.
 
She also notes that not all investors fall subject to irrational feelings and biases and that financial markets would be better understood if they were viewed with a mixture of rational and behavioral methodologies.

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