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The Actuary The magazine of the Institute & Faculty of Actuaries

Inefficient markets - an introduction to behavioural finance

If listening to financial economists causes you to think that you hear their logic but your intuition tells you that the world is not really like that, this book will give you comfort that your intuition might be right or that your intuition is already allowed for in the logic but you haven’t yet quite spotted it… Shleifer gives examples of where investors do make profits from ‘stale’ information, how markets do move when there is no apparent new information to trigger it, and how arbitrage is riskier than you might think. He explores initial under-reaction to new news and over-reaction once it is reinforced. This book helps to understand how financial economics may be of less value in determining absolute values than offering guidance on relative values. It raises the importance of allowing for investor sentiment and issues a challenge of the need for a model of what investors actually think and do – especially when investing other people’s money. Are actuaries up to this challenge? Roll on the next asset bubble, I say, then I can retire!


To purchase this book, click on the cover image