Question
1. Earnings Surprises Can you suggest any reason to be cautious of earning surprises before accepting those results as proof that stock markets are inefficient?
1. Earnings Surprises Can you suggest any reason to be cautious of earning surprises before accepting those results as proof that stock markets are inefficient? How would a hedge fund seek to exploit this finding, for example, and what might it cost to sustain the fund built on this play?
2. Selling Winners too Soon
Equity investors could improve their results, on average, by cutting their losses sooner and letting their winners ride. Can you suggest a rational explanation for this phenomenon, or is it simply that equity investors are prone to myopic emotional reactions, or a limited understanding of the statistical results?
3. Inattention Blindness
Humans selectively focus on what we believe to be important and completely miss what our subconscious mind judges to be unimportant. Can you identify any example from recent economic history when this dynamic seemed to be at play? Can you suggest ways that investment analysts and fund managers can reduce their vulnerability to inattention blindness?
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