The paper deals with the problem of optimal behavior of an investor in the option market with own opinion on market properties. We tell the difference between investor's and market probability distribution functions of future prices of underlier. In this case, the investor might gain in the average income. If the investor, however, is guided by the presently popular Value-at-Risk criterion in t...

The performance and stability of the part time investor strategy in the ten player minority game was investigated. For trials ranging in length from 10 rounds to 10 000 rounds, a parameter value was found that was able to provide a significant improvement in global wealth to the case where all agents picked at random. The part time investor strategy was found to be stable once it had become est...

T he Internet is changing how information is delivered to investors and the ways in which investors can act on that information. It has lowered both the fixed and marginal costs of producing financial services, thus enabling newer, smaller companies to challenge established providers of these services. On-line brokerage firms, such as E*Trade and Ameritrade, are among the most vivid and success...

Recent empirical research in finance has uncovered two families of pervasive regularities: underreaction of stock prices to news such as earnings announcements, and overreaction of stock prices to a series of good or bad news. In this paper, we present a parsimonious model of investor sentiment, or of how investors form beliefs, which is consistent with the empirical findings. The model is base...

This paper sheds empirical light on whether investor sentiment affects the profitability of price momentum strategies. We hypothesize that when investors are optimistic, their expectations will be more miscalibrated relative to those obtained from objective probabilities, and arbitrage will be more difficult with short-selling constraints. Our results show that momentum rises only when investor...

Individual investors trade stocks in a way very different from what mainstream financial economic theory would predict: they generate too much trading volume and yet obtain belowbenchmark performance. This chapter overviews major 'puzzles' of individual investor trading. The extant literature suggests that behavioral biases and psychological explanations are largely responsible for many of the ...

This paper studies the relation between individuals’ mutual fund flows and fund characteristics, establishing three key results. First, consistent with tax motivations, individual investors are reluctant to sell mutual funds that have appreciated in value and are willing to sell losing funds. Second, individuals pay attention to investment costs as redemption decisions are sensitive to both exp...