Determination of Behavioral Finance Patterns Affecting Investors’ Activity in Capital Markets
The rationality model is being challenged by cognitive psychologists’ research. It has begun to penetrate economic modelling, with a large amount of experimental documentation of cognitive weaknesses accumulated thus far, raising the question of whether behavioural decision models, which capture hope or anticipation to risk in experimental settings, will help us understand investor behaviour in financial markets.
We’re attempting to paint a complete picture of the focus hypothesis we’ve built around pricing trends in the creative pharmaceuticals market. We attempt to encompass it from many perspectives: first, we provide a general psychological context for Attention theory, which describes cognitive processes such as the rule of selective attention in short-term processing. Second, we look at the financial aspects of selective focus, and finally, we look at real-world investor activity in the context of a significant milestone in the drug development process: the advisory committee milestone. Our results, together with the current low interest rate environment in the world markets, have resulted in market confidence in this high-risk area. It is focused on 78 events from 2002 to 2014, revealing a perplexing pattern of investor conduct. We see increased trading around regulatory events, which seems to be speculative “micro bubbles.” In this article, we attempt to paint a complete picture of the attention hypothesis by combining it with the “tiny bubbles” that we believe exist in the drug production industry.
Author (s) Details
School of Management & Economics, Wizo Academic College, Haifa, 31090, Israel.
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