Humans Make Factors
SUMMARY
INTRODUCTION
When reading research on factors there are typically several explanation for the existence of factors. Some of the reasons are mathematical or statistical while others are more directly related to human characteristics. Some of these behavioural biases, which are often considered irrational for the homo economicus, have been described as early as 1759 by the economist Adam Smith. In this short paper we’re going to outline some of the biases that meaningfully influence investing behaviour and then describe which factors can be explained or influenced by them.
BEHAVIORIAL BIASES
We have listed 12 (the Dirty Dozen) that have a significant influence on investing behaviour. Empirical evidence shows that retail as well as institutional investors are affected by these biases.