{"id":3279,"date":"2019-12-05T12:08:21","date_gmt":"2019-12-05T17:08:21","guid":{"rendered":"https:\/\/blogs.shu.edu\/magazine\/?p=3279"},"modified":"2025-01-28T09:18:33","modified_gmt":"2025-01-28T14:18:33","slug":"abcs-of-behavioral-finance","status":"publish","type":"post","link":"https:\/\/blogs.shu.edu\/magazine\/2019\/12\/abcs-of-behavioral-finance\/","title":{"rendered":"ABCs of Behavioral Finance"},"content":{"rendered":"
Professor Jennifer Itzkowitz studies the effect of behavior on stock-market trading.<\/div><\/div>\n

Jennifer Itzkowitz was walking to dinner with her husband one night on Manhattan\u2019s Lower East Side when they came upon an unprepossessing food shop that would soon change the course of her academic career. The shop was AAA Avocados, and the company name, splashed across the green awning in both English and Chinese, got Jennifer and Jesse Itzkowitz thinking. Beyond the inevitable befuddlement that is bound to descend whenever one encounters a store that sells nothing \u2014 nothing \u2014 but avocados, the Itzkowitzes were further perplexed: Why would you name your avocado enterprise after the first letter of the alphabet, much less three of them? \u201cIt was so fascinating,\u201d Jennifer says. \u201cThat\u2019s all we could talk about for dinner.\u201d<\/p>\n

A few days later, AAA Avocados still on her mind, Jennifer Itzkowitz shared her fascination during a monthly meeting of fellow Seton Hall finance professors. One of them wondered aloud whether people base their stock picks on such random considerations as a company\u2019s placement within the alphabet. Within traditional circles of economic theory, the very notion seemed nonsensical. Even Itzkowitz thought as much: No way. People are rational. The market\u2019s efficient.<\/p>\n

Still, her professional curiosity piqued, Itzkowitz set out on an academic foray into a field known as\u00a0behavioral finance, determined to gauge for herself just how rational the average investor really was. \u201cI said I\u2019m giving this project two weeks,\u201d she recalls. \u201cSix years later, it\u2019s taken over my life.\u201d<\/p>\n

It\u2019s been a highly productive takeover. Itzkowitz and her collaborators \u2014 including her husband, a holder of Ph.D.s in both cognitive psychology and marketing and senior vice president of behavioral science at Ipsos \u2014 have published three research papers in professional journals on different aspects of behavioral finance. Her work has been documented by Time.com, CNN.com, Money<\/em> and NPR. Last spring, after Itzkowitz debuted a new course on behavioral finance, several students nominated her to be a Seton Hall \u201cGreat Mind of the Week.\u201d<\/p>\n

\u201cWhat I do is study patterns of behavior,\u201d she says. \u201cThe idea of behavioral finance is not that people are irrational, but that they are predictably irrational.\u201d<\/p>\n

Behavioral finance has evolved as an academic discipline only in the past half-century, pioneered by such out-of-the-box economists \u2014 or behavorial economists, as they came to be known \u2014 as Daniel Kahneman, Amos Tversky and Richard Thaler. (Kahneman received the Nobel Prize for Economic Sciences in 2002, Thaler in 2017.) \u201cIn academia,\u201d Itzkowitz says, \u201cwe stand on the shoulders of those who come before us, and I\u2019m attempting to make a contribution to that field.\u201d<\/p>\n

In 2016 Itzkowitz and her co-authors \u2014 including Jesse Itzkowitz and Scott Rothbort, founder and president of LakeView Asset Management \u2014 published a research paper in Review of Finance<\/em> titled \u201cABCs of Trading: Behavioral Biases affect Stock Turnover.\u201d The paper found that investors are more likely to buy and sell stocks with names that begin with A, B and C than with X, Y and Z \u2014 that is, early alphabet stocks. \u201cConsistent with this view,\u201d the authors wrote, \u201cwe find that early alphabet stocks are traded more frequently than later alphabet stocks and that alphabeticity also affects firm value.\u201d<\/p>\n

In a footnote that surely dispelled readers of any clich\u00e9 about humorless academicians, Itzkowitz and her collaborators wrote: \u201cThis paper was originally circulated with the title \u2018The ABCs of Trading: Behavioral Biases affect Stock Turnover\u2019 until we realized that removing the word \u2018The\u2019 increased its position when listed alphabetically.\u201d<\/p>\n

Itzkowitz\u2019s course on behavorial finance attracted 27 students, all finance majors, among them Anna Fajnorova \u201919, who was so beguiled by the professor and the topic that she asked Itzkowitz if she could assist her on a research project. Itzkowitz agreed and put her to work on a study she\u2019s now undertaking.<\/p>\n

Itzkowitz came away equally enthused about the course and determined to improve it. \u201cI worked hard on the class,\u201d she says. \u201cI really thought I connected with the students. They had advice for how to make the course better. They knew they were my guinea pigs.\u201d<\/p>\n

Six years after a humble avocado shop led Itzkowitz on a deep dive into a discipline she had never before explored, she shows no sign of relenting. \u201cThis still feels like the beginning of my behavioral finance journey,\u201d she says. \u201cI\u2019m excited about it.\u201d<\/p>\n

Christopher Hann is a freelance writer and editor in New Jersey.<\/i><\/h6>\n","protected":false},"excerpt":{"rendered":"

Professor Jennifer Itzkowitz studies the effect of behavior on stock-market trading.<\/p>\n

Continue ReadingABCs of Behavioral Finance<\/span><\/a><\/div>\n","protected":false},"author":4613,"featured_media":3200,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_monsterinsights_skip_tracking":false,"_monsterinsights_sitenote_active":false,"_monsterinsights_sitenote_note":"","_monsterinsights_sitenote_category":0,"footnotes":""},"categories":[247,258,5],"tags":[],"class_list":["post-3279","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-2019-2022","category-articles-2015-2019","category-faculty","entry"],"post_mailing_queue_ids":[],"_links":{"self":[{"href":"https:\/\/blogs.shu.edu\/magazine\/wp-json\/wp\/v2\/posts\/3279","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/blogs.shu.edu\/magazine\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/blogs.shu.edu\/magazine\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/blogs.shu.edu\/magazine\/wp-json\/wp\/v2\/users\/4613"}],"replies":[{"embeddable":true,"href":"https:\/\/blogs.shu.edu\/magazine\/wp-json\/wp\/v2\/comments?post=3279"}],"version-history":[{"count":4,"href":"https:\/\/blogs.shu.edu\/magazine\/wp-json\/wp\/v2\/posts\/3279\/revisions"}],"predecessor-version":[{"id":3358,"href":"https:\/\/blogs.shu.edu\/magazine\/wp-json\/wp\/v2\/posts\/3279\/revisions\/3358"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/blogs.shu.edu\/magazine\/wp-json\/wp\/v2\/media\/3200"}],"wp:attachment":[{"href":"https:\/\/blogs.shu.edu\/magazine\/wp-json\/wp\/v2\/media?parent=3279"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/blogs.shu.edu\/magazine\/wp-json\/wp\/v2\/categories?post=3279"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/blogs.shu.edu\/magazine\/wp-json\/wp\/v2\/tags?post=3279"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}