institutions. Investment portfolios are frequently distorted, with consequent excess volatility in stock and bond prices. Examples include the stock market crash of 1987, the bubble in Japan during the 1980s, the demise of Long-Term Capital Management, the Asian crisis of 1997, the dot-com bubble, and the financial crisis of 2008. Most everyone agrees that it is problematical to discuss these dramatic episodes without reference to investor psychology. The term “behavioral finance” has a variety of…
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