Question

Behavioral Finance at JP Morgan

In detail, describe at least five of the behavioral factors examined by JP Morgan. In your description, define the factor, as well as how an investor can take advantage of these factors.

Answer 1

5 behavioral factors which where examined by Jp Morgan-

1. Recency effect is one of the factors which were observed by the JP Morgan which advocates that investors will be highly following the past events and they will be making decisions out of these recent events.

2. Loss aversion effect is another effect which advocates that investors are not ready to book the losses and the tendency to accept the loss is very low

3. Herd behaviour is also reflected by investors in which they are following the herd mentality and they are just following each others rather than following individual research

4. overconfidence is one of the other factors of behavioural finance which reflected that investors are trying to stay overconfident on their own abilities and they are making decisions being highly overconfident which cost them profits.

5. Representativeness is another factor observed by the JP Morgan in case of the investors behaviour.

Investor can take advantage of the factors by being highly focused at his research and not getting impacted by the behavioural aspects of decision making but rather be highly rational while decision making and he will be trying to take decisions on the basis of the rationality in order to maximize his gains from investment.