Disclaimer

The information contained in the website is solely intended for professional investors. Some funds shown on this website fall outside the scope of the Dutch Act on the Financial Supervision (Wet op het financieel toezicht) and therefore do not (need to) have a license from the Authority for the Financial Markets (AFM).

The funds shown on this website may not be available in your country. Please select your country website (top right corner) to view the products that are available in your country.

Neither information nor any opinion expressed on the website constitutes a solicitation, an offer or a recommendation to buy, sell or dispose of any investment, to engage in any other transaction or to provide any investment advice or service. An investment in a Robeco product should only be made after reading the related legal documents such as management regulations, prospectuses, annual and semi-annual reports, which can be all be obtained free of charge at this website and at the Robeco offices in each country where Robeco has a presence.

By clicking Proceed I confirm that I am a professional investor and that I have read, understood and accept the terms of use for this website.

Decline

Behavioral finance

Behavioral finance studies the influence of psychology and sociology on the behavior of investors and how this can impact the financial markets.

This is important because it helps to explain why markets are inefficient and why factor premiums exist. Behavioral Finance assumes that investors are not fully rational in their actions, but rather constantly allow their decisions to be influenced by human emotions. These emotions elicit irrational decisions, also known as biases or prejudices.

One example of this is the herding instinct: the shared tendency of investors to want to take the same decisions at the same time. This can be explained by the fact that investors do not want to run the risk of seeing returns on their portfolio fall short of returns realized by others. We are all familiar with the example of herding that occurred during the Internet bubble in the late 1990s. One of the main reasons that investors bought technology stocks at that time was because they saw others earning money with them.

A second example is anchoring: the investors’ tendency to focus on irrelevant information when making their investment decisions. They prefer not to sell stocks at a price below their purchase price and so hold on to them for too long in the hope of recouping their losses. As a result of anchoring, stock prices tend to only gradually respond to news which is a possible explanation for the Momentum factor.

Gaining an understanding of investor behavior through academic research plays an important role in establishing an explanation for factors and factor premiums and assessing the extent to which they will be sustainable in the long term.