Buttonwood: The wisdom of the laity

Posted: June 13, 2014 in economy
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UK Only Article: 
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Terror’s new headquarters

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Retail investors are more influential than most people think

“FOLKS are dumb where I come from,” wrote Irving Berlin in the musical “Annie Get Your Gun”. The song’s condescension towards yokels is reminiscent of professional investors’ disdain for their retail counterparts. The “smart money” in New York and London thinks it can make a living exploiting the “dumb money” of people who live in the sticks. Yet a new paper from researchers at the Federal Reserve shows that retail investors—in America, at any rate—are a lot smarter than the professionals imagine. In fact, they have a bigger effect on the markets than the highly paid investment strategists of Wall Street.
Much of the economic literature assumes that ordinary investors are “noise” traders who deal at random (think of Nate Silver’s book “The Signal and the Noise”). They trade too often, it is thought, and are susceptible to behavioural biases such as over-optimism and loss-aversion.

Some trading will always …

via Economic Crisis http://ift.tt/1l6GfDu


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