How Practical Is Behavioral Finance?
We can ask ourselves if these studies will help investors beat the market. After all, rational shortcomings ought to provide plenty of profitable opportunities for wise investors. In practice, however, few if any value investors are deploying behavioral principles to sort out which cheap stocks actually offer returns that can be taken to the bank. The impact of behavioral finance research still remains greater in academia than in practical money management. While it points to numerous rational shortcomings, the field offers little in the way of solutions that make money from market manias. Robert Shiller, author of “Irrational Exuberance” (2000), showed that in the late 1990s, the market was in the thick of a bubble. But he couldn’t say when it would pop. Similarly, today’s behaviorists can’t tell us when the market has hit bottom. They can, however, describe what it might look like. Conclusion The behavioralists have yet to come up with a coherent model that actually predicts the futu
