BEHAVIOURAL

FINANCE THEORIES
UNIT II
Boom and Bust Cycle
• The boom and bust cycle is the alternating phases of economic
growth and decline. It's another way to describe the business cycle or
economic cycle.

• According to the Federal Reserve Bank of Richmond, these phases are

inevitable
Phases of the Boom and Bust Cycle

PHASE BOOM AND BUST BUSINESS CYCLE

1. Boom Expansion

2. End of Boom Peak

3. Bust Contraction

4. End of Bust Trough

1. Boom
• In the boom phase, growth is positive. If economic growth remains in
the healthy range of 2%-3%, it can stay in this phase for years. 
• It accompanies a bull market, rising housing prices, wage growth, and low
unemployment.
• The boom phase doesn't typically end unless the economy overheats.
• There's too much liquidity in the money supply, leading to inflation. 
• As prices rise, irrational exuberance takes hold of investors. 
• The growth rate grows above 4% for two or more quarters in a row. 
• You know you're at the end of a boom phase when the media says the
expansion will never end.
• That's when even the grocery clerk is making money from the latest asset
bubble.
• In 2020, the boom phase ended abruptly because of the COVID-19
pandemic.
2. Peak
The end of the boom or expansion phase is the peak. According to the National Bureau
of Economic Research, it's the inflection point where the economy stops expanding.

3. Bust
• The bust phase is the contraction stage of the business cycle. It is brutish, nasty, and
mercifully short. On average, it lasts 11 months.
• The economy contracts, the unemployment rate is 7% or higher, and the value of
investments falls.
• If it lasts more than three months, it's a recession. 
• It can be triggered by a stock market crash, followed by a bear market.
• A stock market crash can cause a recession.
• As stock prices fall, everyone loses confidence in the state of the economy.
• When investors don’t feel confident about the future outlook, they pull out their
investments.
• They cut back business activities such as purchasing, hiring, and investing
Prospect Theory
• Prospect theory assumes that losses and gains are valued differently, and thus
individuals make decisions based on perceived gains instead of perceived
losses.

• Also known as the "loss-aversion" theory, the general concept is that if two
choices are put before an individual, both equal, with one presented in terms of
potential gains and the other in terms of possible losses, the former option will
be chosen.

• Prospect theory belongs to the behavioral economic subgroup, describing how

individuals make a choice between probabilistic alternatives where risk is
involved and the probability of different outcomes is unknown.
Loss Aversion Theory
• Loss aversion is a tendency in behavioral finance where
investors are so fearful of losses that they focus on trying to
avoid a loss more so than on making gains. The more one
experiences losses, the more likely they are to become
prone to loss aversion.

• Research on loss aversion shows that investors feel the pain

of a loss more than twice as strongly as they feel the
enjoyment of making a profit.
Examples of Loss Aversion
• Investing in low-return, guaranteed investments over more promising
investments that carry higher risk

• Not selling a stock that you hold when your current rational analysis of
the stock clearly indicates that it should be abandoned as an investment

• Selling a stock that has gone up slightly in price just to realize a gain of
any amount, when your analysis indicates that the stock should be held
longer for a much larger profit

• Telling oneself that an investment is not a loss until it’s realized (i.e.,
when the investment is sold)
BEHAVIOURAL BIASES THEORIES
Heuristics:-
• Heuristics are a subfield of cognitive psychology and behavioral science.
• They are shortcuts to simplify the assessment of probabilities in a decision
making process.
• Initially they dealt with cognitive biases in decision making, and then
encompassed emotional factors.
• The primary concern of the research was to understand and reduce the
deviations from rational choice models.
• However, the research found that those biases were often systematic, or not
random, and therefore they could be predicted.
• Tversky and Kahneman proposed three heuristics

1. Availability
2. Representativeness
3. Anchoring and adjustment.
Overconfidence Bias
• Overconfidence bias is a tendency to hold a false and
misleading assessment of our skills, intellect, or talent.

• In short, it’s an egotistical belief that we’re better than we

actually are. It can be a dangerous bias and is very prolific
in behavioral finance and capital markets. 
Types of Overconfidence
Over Ranking:-
• Over ranking is when someone rates their own personal performance as
higher than it actually is. 
• The reality is that most people think of themselves as better than average.
• ]In business and investing, this can cause major problems because it typically
leads to taking on too much risk.

Illusion of Control:-
• The illusion of control bias occurs when people think they have control over a
situation when in fact they do not.
• People believe they have more control than they really do.
• This can be very dangerous in business or investing, as it leads us to think
situations are less risky than they actually are. Failure to accurately assess
risk leads to failure to adequately manage risk.
Timing Optimization:-
• Timing optimism is another aspect of overconfidence psychology.
• An example of this is where people overestimate how quickly they can do work
and underestimate how long it takes them to get things done.
• Especially for complicated tasks, business people constantly underestimate how
long a project will take to complete. Likewise, investors frequently underestimate
how long it may take for an investment to pay off.

Desirability Effect:-
• The desirability effect is when people overestimate the odds of something
happening simply because the outcome is desirable.
• This is sometimes referred to as “wishful thinking”, and is a type of overconfidence
bias. We make the mistake of believing that an outcome is more probable just
because that’s the outcome we want.
Representativeness Heuristic Bias

• Representativeness heuristic bias occurs when the similarity

of objects or events confuses people’s thinking regarding the
probability of an outcome.
• People frequently make the mistake of believing that two
similar things or events are more closely correlated than
they actually are.
• This representativeness heuristic is a common information
processing error in behavioral finance theory.
Representativeness Heuristic Example
• Consider Laura Smith. She is 31, single, outspoken and very
bright. She majored in economics at university and, as a
student, she was passionate about the issues of equality and
discrimination.
• Is it more likely that Laura works at a bank? Or, is it more
likely that she works at a bank AND is active in the feminist
movement?
Protection against Heuristic as an investor
• In financial markets, one example of this representative bias is
when investors automatically assume that good companies
make good investments. However, that is not necessarily the
case. A company may be excellent at their own business, but a
poor judge of other businesses.

• Another example is that of analysts forecasting future results

based on historical performance. Just because a company has
seen high growth for the past five years doesn’t necessarily
mean that trend will continue indefinitely into the future.
Anchoring and Adjustment Bias
• Anchoring and adjustment refers to a cognitive heuristic that
influences how people assess probabilities in an intuitive
manner.
• According to the anchoring and adjustment heuristic, people
employ a certain starting point (“the anchor”) and make
adjustments until they reach an acceptable value over time.
• The heuristic was first hypothesized by psychologist and
economist Daniel Kahneman and cognitive psychologist
Amos Tversky.
Mechanism of Anchoring and Adjustment
• Anchoring is a cognitive bias found in people, where they rely
on facts provided before a decision or an estimation is made.
• The facts may be completely unrelated or even absurd, but
research shows that they significantly impact the outcome.
• Anchoring is understood to be a subconscious or
semiconscious phenomenon, while adjustment around the
anchor is very much a conscious decision.
• The mechanism that drives the anchoring effect is related to a
similar concept called suggestion.
 
Anchoring via Suggestion
• An adjacent idea to anchoring is the idea of suggestion.
• Suggestion is when one makes an estimation based on some
association and makes adjustments based on the same.

For example, a study found that estimated prices of cars

from luxury manufacturers like Audi or Mercedes were
consistently higher than those for Volkswagen, which is a
mass-market manufacturer. The difference is because people
associate the car manufacturers with certain characteristics in
their memory. It forms the basis of semiconscious anchoring.
Subconscious Anchoring
• Subconscious anchoring happens when there is little to no
association that a person makes, or the anchor is obviously
incorrect.
• In such a situation, either the person imagines a situation in
which the anchor may be correct, or the incorrect anchor
can still induce a suggestion that could lead to anchoring as
described above.
Cognitive Dissonance Bias
• Cognitive dissonance describes when we avoid having conflicting
beliefs and attitudes because it makes us feel uncomfortable. The clash
is usually dealt with by rejecting, debunking, or avoiding new
information.
• Prolific behavioral finance author Michael Pompian notes, “When
newly acquired information conflicts with preexisting understandings,
people often experience mental discomfort…cognitive dissonance.”
• Cognitive dissonance partially explains the reasons why we succumb
to confirmation bias; confirmation of our beliefs prevents or relieves
mental pain.

An example of this can be seen when we make investment decisions

that result in losses and often rationalize to relieve dissonance.
However, rationalizing to ease cognitive dissonance (e.g. “My broker
bought it for me.” or “Its stock price hit new highs, so everyone thought
it was a good bet.”) prevents us from learning how to avoid similar
mistakes.
Factors that affect the degree of cognitive dissonance that a person
experiences include:

• The type of beliefs: Beliefs that are more personal lead to more
significant dissonance.

• The value of the beliefs: Beliefs that people hold in high regard tend
to cause greater dissonance.

• The size of the disparity: A substantial disparity between conflicting

and harmonious beliefs will result in more dissonance.
Situations where cognitive dissonance can occur include:-

• Smoking despite being aware of the adverse health effects of tobacco use.
• Choosing to promote a behavior, such as regular exercise, that a person does not
themselves practice. This type of cognitive dissonance is called hypocrisy.
• Telling a lie despite the person thinking of themselves as honest.
• Purchasing a new car that is not fuel efficient, despite being environmentally
conscious.
• Eating meat while also thinking of themselves as an animal lover who dislikes the
thought of killing animals. Some researchers call this the meat paradox.
 Availability Bias
• The availability bias is the human tendency to think that examples of things that come
readily to mind are more representative than is actually the case.

• The psychological phenomenon is just one of a number of cognitive biases that

hamper critical thinking and, as a result, the validity of our decisions.

• The availability bias results from a cognitive shortcut known as the

availability heuristic, defined as the reliance on those things that we immediately
think of to enable quick decisions and judgments. 

• The availability bias happens when we overestimating the likelihood of something

happening because a similar event has either happened recently or because we feel
very emotional about a previous similar event.
Biases affect how people process complex
information
• The availability bias happens we people often judge the likelihood of
an event, or frequency of its occurrence by the ease with which
examples and instances come easily to mind.
• Most consumers are poor at risk assessments – for example they over-
estimate the likelihood of attacks by sharks or list accidents.
• Smokers may see one elderly heavy smoker and exaggerate the likely
healthy life expectancy of this group.
• Periods of very warm weather or experience of other extreme weather
events may affect beliefs about causes of climate change
Self Attribution Bias
•  A self-attribution bias refers to people's tendency to attribute
their successes to internal factors but attribute their failures to
external.

• This bias helps to explain why we tend to take credit for our
successes while often denying any responsibility for failures. 

• For example, a tennis player who wins his match might say, "I
won because I'm a good athlete," whereas the loser might say,
"I lost because the referee was unfair.“
• The self-serving bias has been thought of as a means of self-
esteem maintenance.

• In other words, we feel better about ourselves by taking credit for

successes and creating external blames for failure.

• This is further reinforced by research showing that as self-threat

increases, people are more likely to exhibit a self-serving bias

• For example, participants who received negative feedback on a

laboratory task were more likely to attribute their task performance
to external, rather than internal, factors. Therefore, the self-serving
bias seems to function as an ego-protection mechanism, helping
people to better cope with personal failures.
How to avoid it
1.An individual’s ability to demonstrate self-kindness, especially when
experiencing a sort of personal failure.

2.An individual’s ability to understand their common humanity, or

rather, that they are human, and that other humans experience the same
sort of experiences and failures.

3.And finally, an individual’s mindfulness, and being able to identify

uncomfortable thoughts without judging them.
Examples of self-serving bias
• A student gets a good grade on a test and tells herself that she studied hard or is
good at the material. She gets a bad grade on another test and says the teacher
doesn’t like her or the test was unfair.

• Athletes win a game and attribute their win to hard work and practice. When they
lose the following week, they blame the loss on bad calls by the referees.

• A job applicant believes he’s been hired because of his achievements,

qualifications, and excellent interview. For a previous opening he didn’t receive
an offer for, he says the interviewer didn’t like him.
Illusion of control Bias
• The illusion of control describes how we believe we have greater
control over events than we actually do. Even when something is a
matter of random chance, we often feel like we’re able to influence it
in some way.
Example:-
• You and your family are going to watch your favorite soccer team in
the league championship match. As always, your dad wears his
“lucky” jersey in the team’s colors. It’s a little small on him these
days, but he insists on wearing it, because he thinks it will boost the
team’s chances of winning.
• The illusion of control bias, another form of dissonant behavior,
describes the tendency of human beings to believe that they can
control or at least influence outcomes when, in fact, they cannot.

For example, let’s say you decide to purchase a lottery ticket.  Which
option makes you feel better about your chances to win:
1.A ticket where you get to choose the numbers?
2.A ticket with randomly generated numbers?
So how can this bias impact investors?
1. Illusion of control bias can lead investors to trade more than is prudent. Researchers have found that
traders, especially online traders, believe themselves to possess more control over the outcomes of
their investments than they actually do. An excess of trading results, in the end, in decreased returns.

2. Illusions of control can lead investors to maintain underdiversified portfolios. Researchers have found
that investors hold concentrated positions because they gravitate toward companies over whose fate
they feel some amount of control. That control proves illusory, however, and the lack of
diversification hurts the investors’ portfolios.

3. Illusion of control bias can cause investors to use limit orders and other such techniques in order to
experience a false sense of control over their investments. In fact, the use of these mechanisms can
often lead to an overlooked opportunity or, worse, a detrimental, unnecessary purchase based on the
occurrence of an arbitrary price.

4. Illusion of control bias contributes, in general, to investor overconfidence. In particular, investors who
have been successful in business or other professional pursuits believe that they should also be
successful in the investment realm. What they find is that they may have had the ability to shape
outcomes in their vocation, but investments are a different matter altogether.
Endowment Bias
• The endowment effect describes how people tend to value items that
they own more highly than they would if they did not belong to them.
• This means that sellers often try to charge more for an item than it
would cost elsewhere.

Example: Let’s say a few months ago, you bought a concert ticket for
$100. You just found out that you won’t be able to make it to the concert
after all, so you decide to resell your ticket. You price the ticket at $150,
because just selling it at market value would feel like you were losing
out.
Individual Effects
• The endowment effect can impact us both as buyers and as sellers.
• This bias is easily exploited by marketers and salespeople: any tactic
that makes us feel a sense of psychological ownership over a product
can encourage us to spend more on it.
• As sellers, the endowment effect can lead us to price things
unreasonably, based on a misguided sense that if we don’t, we’ll lose
out.
Systematic Effect
• The endowment effect can cause us to overspend when we’re buying
things, leading to extra costs that add up over time.
• This bias can lead to opportunity costs i.e., gains that we miss out on
—if it causes us to overprice our old stuff to the point where we don’t
sell it.
Optimism Bias
• The optimism bias refers to our tendency to overestimate our
likelihood of experiencing positive events and underestimate our
likelihood of experiencing negative events.
Why it happens
• The optimism bias instills feelings of control.
• We generally want to feel as if we have control over our lives and our
fates. Negative events like illness, divorce, or financial loss often
threaten our plans or derail the predictions we have about ourselves.
• Optimism prevents us from lingering in these negative outcomes.

[Optimism Bias.docx]
How to avoid it
• Nobel Prize-winning economist Daniel Kahneman has widely researched the
optimism bias and proposes two different ways of mitigating its influence on our
decision making: taking an outside view and a post mortem approach

1. “Identify an appropriate reference class” – Look for a general category to put your
task in. This could be grocery shopping, home remodeling, or a professional project.

2. “Obtain statistics for this reference class” – Look for statistics on how long it takes
to complete the type of task on average. These are your “base rates”

3. “Use specific information about the case to adjust the baseline prediction” – If there
are certain concrete things that you think are worth changing your predictions for,
use your judgment to make prediction adjustments.
Confirmation Bias
• It is the tendency to process information by looking for, or
interpreting, information that is consistent with one’s existing
beliefs.
• This biased approach to decision making is largely unintentional
and often results in ignoring inconsistent information.
• Existing beliefs can include one’s expectations in a given
situation and predictions about a particular outcome.
• People are especially likely to process information to support
their own beliefs when the issue is highly important or self-
relevant.
Importance
• Confirmation bias is important because it may lead people to
hold strongly to false beliefs or to give more weight to
information that supports their beliefs than is warranted by the
evidence.
• People may be overconfident in their beliefs because they have
accumulated evidence to support them, when in reality much
evidence refuting their beliefs was overlooked or ignored,
evidence which, if considered, would lead to less confidence in
one’s beliefs.
• These factors may lead to risky decision making and lead people
to overlook warning signs and other important information.
Examples
• A person with low self-esteem is highly sensitive to being ignored by other
people, and they constantly monitor for signs that people might not like
them. Thus, if you are worried that someone is annoyed with you, you are
biased toward all the negative information about how that person acts
toward you. You interpret neutral behavior as indicative of something
negative.

• When dealing with certain illnesses, positive thinking may actually be

beneficial for diseases such as cancer, but not diabetes or ulcers. There is
limited evidence that believing that you will recover helps reduce your level
of stress hormones, giving the immune system and modern medicine a
better chance to do their work.
Impact of Biases on Investors
“Irrational” human behavior can be categorized and modeled
By learning about how these behaviors impact investors, financial professionals can help their
clients mitigate and prevent errors

• Loss aversion, an aspect of prospect theory, asserts that losses loom larger than gains

Example: Investors are prone to keep losing stocks, hoping they will rebound, and are more likely
to sell gaining stocks, afraid of a potential downturn

• Cognitive errors, which cause a person’s decisions to deviate from rationality, fall into two
subcategories

• Belief preservation errors refer to the tendency to cling to one’s initial belief even after
receiving new information that contradicts it

• Information processing errors refer to mental shortcuts

Emotional errors arise as a result of attitudes or feelings that cause one to deviate from
rationality
 External Factors defining investors behaviour
• Risk Tolerance: Risk refers to the volatility of portfolio’s value. The amount of risk the investor
is willing to take on is an extremely important factor.
• Return Needs: This refers to whether the investor needs to emphasize growth or income.
• Investment Horizon: The time horizon starts when the investment portfolio is implemented
and ends when the investor will need to take the money out.
• Tax Exposure: Investors in higher tax brackets prefer such investments where the return is tax
exempt, others will have no such preference.
• Market Trends: You need to understand how various asset classes have performed in the past
before planning your finances.
• Investment Needs: How much money do you need at the time of maturity?
• Risk Coverage: A type of insurance coverage that can exclude only risks that have been
specifically outlined in the contract.
• Dependents: People who relies on another person, especially a family member, for financial
support.
 How Greed affects asset prices and returns ?

Jeff Bezos, the CEO of Amazon once asked Warren Buffet, “Your investment thesis is so simple. Why
doesn’t everyone just copy you?” Buffet responded to Bezos by saying, “Because no one wants to get
rich slow”.
What Warren Buffet said to Jeff Bezos is the essence of Greed in investment behaviour.

• Investors want to make profits quickly and bull markets provide a great opportunity to make profits
in a short period of time.
• When price keeps rising, more and more people invest more and more money in stocks.
• Stock prices follow the law of demand and supply.
• With higher demand (more money), prices keep rising further and profits grow.
• Growing profits fuel more greed and more money get invested raising prices to excessive levels.
• At very high prices, asset bubbles are created i.e. prices are much more than intrinsic or
fundamental value of assets.
• Like all bubbles, asset bubbles eventually burst and prices crash. Investors who had bought stocks at
very high prices face big losses when market corrects.
How Fear affects asset prices and returns ?
• When asset prices get overheated it eventually corrects. Bear markets (falling markets)
can be triggered by a number of factors but the most common factor is slowing or sluggish
economy.
• It has generally been seen that a stock price fall faster than it rises.
• 2 – 3 years of gains in stock price can be wiped out in just 2 – 3 months during bear
markets.
• A number of reasons can be ascribed to severe crashes seen in bear markets e.g. high
leverage through derivatives near bull market peaks, margin calls getting triggered etc,
but the fundamental reason is Fear.
• When prices fall sharply, investors fear that it will fall more and sell in panic.
• Stock prices follow the law of demand and supply.
• In a bear market, supply of stocks is high since most investors want to sell in panic.
• Panic selling causes stock prices to fall sharply.
• Ultimately, prices fall to such low levels that stock valuations become attractive (cheap)
and the markets eventually bottoms out.
Emotional Finance
• Emotional finance is a new paradigm in the understanding of investment activity and prediction of
asset prices and market behaviour.

• It differs both from traditional finance theory which is based on the idea investors are “rational”,
and behavioural finance which although recognising that investors are prone to bias nevertheless
implicitly assumes they can still learn to be rational.

• Emotional finance recognises that people are inherently irrational and largely driven by their
emotions, both those of which they are consciously aware and, more importantly, those which are
unconscious.

• These latter are even more powerful because they are not directly accessible to the conscious mind.

• Emotional finance draws explicitly on the insights of the psychoanalytic understanding of the
human mind to describe how unconscious processes drive investment decisions and market
dynamics, and are an integral part of all financial decision making
Types of Investors
Active Investors:-

• Active investors stay abreast of their stocks' performance, do a

lot of research and keep up with the daily financial news.
• They don't necessarily buy one day and sell the next, but they do
pay attention to changes in trends and buy or sell based on
those trends.
• This person is an avid investor who takes a great deal of care
with each investment decision and does not necessarily hold an
investment long term.
Passive Investors:-

• This kind of investor doesn't try to go for the biggest possible gains at all
times.
• Instead, the passive investor accepts reasonable gains in exchange for a
lower stress level and more free time.
• This person may invest in mutual funds so the funds' money managers
can make buy and sell decisions.
• She may buy individual stock in established companies and hold that
investment for a year or more.
• Passive investors tend to remove stress from investment decisions by
setting parameters for adding more stock to their portfolios.
• For example, when their stocks rise 20 pecent, they may sell some to
take profits.
Speculators:-

• Some investors look for a chance to make money fast.

• They search the market for stocks that are poised to go up
because of an impending deal.
• They scour the news for announcements about mergers that
could affect a company positively, and then they pounce on the
stocks of those companies. T
• hey tend to sell after a stock makes them a little money,
reasoning that they can repeat the process of buying and selling
frequently and therefore outperform the market.
Retirement Investors:-

• People investing for retirement tend to change their tactics as

they approach retirement age.
• They may choose an aggressive approach when they are
younger.
• This involves buying riskier stocks that have the potential for
growth.
• Such an investor may switch to more moderate-risk stocks
during midlife and then switch to dividend stocks that produce
income during retirement.
Characteristics of successful investors
Interested and Eager To Learn
• To excel you have to do the work, and you won’t do the work unless you are interested
in the subject matter. You have to get some kind of enjoyment out of it.
• You have to be comfortable with reading market analysis, economic data, and company
reports.
Open-Minded
• Recognizing that you don’t know everything will help you recognize new opportunities
and better ways of thinking. I
• nvestors who are set in their ways and rigid in their worldview will quickly be left
behind.
Financial Literacy
• You don’t need to be a math whiz.
• But you have to get comfortable working with numbers, because numbers are the
language of investing.
Numeracy
• You have to be able to calculate probabilities.
• This is an essential part of risk management.
Rational & Realistic
• If you set unrealistic goals or have unrealistic expectations, you only set
yourself up for disappointment and discouragement.
• If your beliefs are irrational, you will not be able to understand how the
capital markets work.
Disciplined
• Top investors are process-driven and methodical.
• They take the time to create a detailed, written plan and then they stick
to it.
• They are thorough in their research and execution.
Focused
• To succeed, you have to find a niche where you can use your natural competitive
advantage.
• If you work in the computer software industry, you have a natural advantage
over other investors in that space who don’t understand the nuances of
successful business models.
Humility
• You have to have the ability and willingness to recognize and admit mistakes.
Emotional Durability
• The stock market is a rollercoaster, so you have to be able to handle the extreme
peaks and valleys.
Patience:
• Sometimes your investment thesis will take a long time to unfold in the market.
• Impatient investors jump from one thesis to the next, and rarely find satisfaction.
Skeptical
• Scoundrels, pirates, and parasites are everywhere.
• Don’t be naïve and don’t fall for promises of high reward with low risk
schemes.
Bayesian Thinking
• Start with a theory, and update your assumptions as more information comes
to light.
• Be flexible and open-minded.
Frugal
• Always keep an eye on costs, but be willing to pay a premium for valuable
expertise or information.
Team-Oriented
• Willing to delegate responsibilities that are beyond your capability or
prohibitively time-consuming to others who can handle them more
efficiently.
Bubbles and systematic investors sentiments
• A “bubble” is a speculative mania – a surge in the price of an asset that’s
not justified by its fundamentals and that ends when market sentiment
turns and the asset’s price collapses and returns to the mean.
“Bubbles are notoriously difficult to spot and tricky to invest
into and out of.”
• Because they occur so much more often than in the past, it’s more urgent
for investors to understand them and know how to respond when they
appear.
• By harnessing the vast amount of news and discussion available from
online news feeds and archives and from social media, and applying
sophisticated analytics, analysts can distill a broad reading of collective
sentiment about individual companies and asset classes, enabling them to
spot the next bubble.
• Sentiment indices reflets market perceptions. 
• Trust is one such sentiment, and the trust that investors feel toward a
company is a key driver of its stock price. 
•  Investment professionals can derive new insights from visualizing
and tracking public perceptions such as these.
• Investors develop predictive models on top of this data, enabling them
to enhance their investment and trading performance.
 The four stages of a market bubble

“The flip side of a bubble is when an asset is undersold, often in overreaction to bad news,
and investors run the risk of missing an opportunity when the asset price bounces back.”
THANK YOU !!