BIAS OF THE WEEK

Illusory Correlation

A study analyzed a dataset of daily stock returns from 1990 to 2008

According to the study, stocks that were frequently traded based on non-fundamental factors such as rumors, intuition or patterns were more likely to be perceived as linked to other stocks, even if there was no actual correlation between them.

Illusory correlation leads individuals to perceive a connection between two variables, even when there is no actual association between them.

See the full study here :

Bender, J. C., Osler, C. L., & Simon, D. (2012). Noise Trading and Illusory Correlations in US Equity Markets*. Review of Finance, 17(2), 625-652. doi:10.1093/rof/rfr037

 

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Ostrich Effect

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Confirmation Bias

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