Economists studying the machinations of markets have posited behavioral theories on how participants formulate their decisions. Rational expectations, adaptive expectations and the efficient market theory provide insights on the ebbs and flows of asset prices. But professors Samuel M. Hartzmark and Kelly Shue offer another vantage point on equity price fluctuations: “Contrast effects” occur when previous information creates a bias among investors. Traders, investors and analysts interested in exploring market behavior will find this a valuable report.
In this summary, you will learn
- What “contrast effects” occur in financial markets,
- Why these effects matter for market participants and
- How investors should assess these behavioral biases.
About the Authors
Samuel M. Hartzmark is a professor at the University of Chicago Booth School of Business. Kelly Shue is a professor at the Yale School of Management.