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Trend-Chasing

In: The Lottery Mindset: Investors, Gambling and the Stock Market

Author

Listed:
  • Wai Mun Fong

    (National University of Singapore)

Abstract

The human brain is hard-wired to look for patterns even in randomness. A common bias in investing is the extrapolation bias or the tendency to buy assets that have high past returns and sell assets that have low past returns. Trend-chasing is particularly common among individual and inexperienced investors. This chapter analyzes the psychological biases that precipitate trend-chasing, surveys the research evidence on trend-chasing from psychology, economics, and finance, and examines the short-and longterm consequences of this form of behavior.

Suggested Citation

  • Wai Mun Fong, 2014. "Trend-Chasing," Palgrave Macmillan Books, in: The Lottery Mindset: Investors, Gambling and the Stock Market, chapter 3, pages 46-76, Palgrave Macmillan.
    • Handle: RePEc:pal:palchp:978-1-137-38173-6_3
    DOI: 10.1057/9781137381736_3
    as

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