How does behavioral finance explain the stock market bubble?

Behavioral finance theory attributes stock market bubbles to cognitive biases that lead to groupthink and herd behavior. Bubbles occur not only in real-world markets, with their inherent uncertainty and noise, but also in highly predictable experimental markets.

What is decoupling in stock market?

Decoupling refers to a situation in which security prices or returns on asset behave differently from the expected pattern. When different assets classes that exhibit certain similar behaviours behave contrary to their normal correlations or patterns, decoupling has occurred.

What triggers stock market correction?

Why stock market corrections happen At the most basic level, market corrections (and all types of market declines, for that matter) occur because investors are more motivated to sell than to buy. That’s simple supply and demand, but it doesn’t explain why investors are selling.

What do Behavioural finance theory explain?

Behavioral finance is the study of the effects of psychology on investors and financial markets. It focuses on explaining why investors often appear to lack self-control, act against their own best interest, and make decisions based on personal biases instead of facts.

How can behavioral finance explain stock market data?

By integrating the fluctuations in risk and loss aversion, the behavioral finance pricing model can explain more stock market data, including high historical returns and volatile periods. Behavioral finance also relies upon the influence of reference points.

Does behavioral finance matter in making stock investment decisions at ASE?

The research provided some recommendations for investors trading at ASE to adopt scientific bases in making stock investment decisions, and suggested to conduct further research to study the impact of behavioral finance on the different types of risks and yields at ASE. Behavioral Finance, Stock Investment Decisions, Loss Aversion.

How does behavioral finance affect individual investors at Amman Stock Exchange?

The results showed that there was an impact of the behavioral finance at Amman Stock Exchange represented by three behavioral factors affecting the investment decisions of the individual investors which were: overconfidence, loss aversion, and herding, the results also showed that the variable overconfidence had the most relative significance.

Why do investors keep losing stocks and selling stocks?

Turning to the stock market, investors are prone to keep losing stocks, hoping they will rebound, and are more likely to sell gaining stocks, afraid of a potential downturn.