"Consider a stock that picks up 10 cents on even days of the month and loses that much on odd days. Now imagine, instead, a stock that picks up value until the midpoint of the month, and then sinks until the endpoint. Both stocks offer the same monthly and yearly return. But investors will tend to regard the first stock as safer than the second, according to a paper soon to be published in The Journal of Consumer Research. The researchers found an essentially irrational buyer response to “run length,” meaning the height and depth of a stock’s spikes, unrelated to the frequency with which the stock varies, the period of time over which the investment is contemplated, the stock’s returns over a given period or its average value."
Tuesday, September 22, 2009
Drilling Down - Perceiving the Risk of Stock Picking - NYTimes.com: