How Behavioral Finance Patterns affect Investors’ Activity in Capital Markets?

Abstract

interrelated through learning. Most of these nodes are normally passive and inactive and are termed long-term store when in the inactive state. The set of currently activated nodes is termed short-term store. Longterm store in thus a permanent, passive repository for information [1]. Short-term store is a temporary state; information in short-term store is said to be lost or forgotten when it reverts from an active to an inactive phase. Control of the information-processing system is carried out through a manipulation of the flow of information into and out of short-term store. These control processes include decisions of all sorts, rehearsal, coding, and search of short-and long-term store [17][18][19][20].Long-term store contains learned sequences of information processing that may be initiated by a control process or by environmental or internal information input but that are then executed automatically with few demands upon the capacity of short-term store [21][22][23][24][25][26][27][28][29][30]. This automatic process can be activated in response to a particular input configuration, where the inputs may be externally or internally generated and include the general situational context, or it will be activated automatically without the necessity of active control or attention by the subject [31][32][33][34][35][36]. For example, a red traffic light might initiate a braking response when the perceiver is in a car, and a walking, halting, or traffic-scanning response when the perceiver is a pedestrian. Since an automatic process operates through a relatively permanent set of associative connections in long-term store, any new automatic process requires an appreciable amount of consistent training to develop fully. Furthermore, once learned, an automatic process is difficult to suppress, to modify, or to ignore.Keywords: Behavioral finance; Inefficient market; Attention; Corporate news; Event study; Financial markets; Pharmaceutical companies; Probability weighting functions Introduction Psychology framework -Attention theoryThe concept of attention has its roots in the nineteenth century where the study of the attention effects was a favorite topic for introspection. Only by the end of the 1950s, the situation had altered radically, and the newly legitimized concept of attention was a central topic in an emergent cognitive psychology [1][2][3][4][5]. The concept, in general, defines an individual's notable ability to resist distraction as a manifestation of selective attention. Likewise, our research describes investors` attention-grabbing focus to market events as can be seen as selective attention.The main function of the term "attention" in post-behavioristic psychology is to provide a label for some of the internal mechanisms that determine the significance of stimuli and thereby make it impossible to predict behavior by stimulus considerations alone [6][7][8][9][10]. The main idea of attention within cognitive psychology is that the organism appears to control the choice of stimuli that will be allowed, i...

Quantifying Risk in Investment Decision-Making

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Predicting Price Trends in the Wheat Market Using Technical Analysis Indicators

“…Pattern analysis in behavioural finance involves various techniques such as Hidden Markov Models (HMM) for detecting temporal patterns in financial data (Vijaya, 2016), Social Network Analysis combined with Multi-way Factor Analysis (MFA) to identify groups of similar behaviors and trajectories of actors in a network (Drusinsky, 2012), and Shannon entropy as a measure of behavioral trading patterns in financial markets, distinguishing between algorithmic and non-algorithmic traders (Liberati and Zappa, 2013). Additionally, cognitive limitations and selective attention play a significant role in investor behavior, as seen in the attention hypothesis developed around pricing patterns in the pharmaceutical sector (Rothman, 2017). These diverse approaches help in understanding the impact of behavioural factors on investment decisions and performance, providing insights for investors, financial planners, and investment advisors.…”