Behavioral finance FAQ / Glossary (F)

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Fa - Fai


Dates of related message(s) in the
Behavioral-Finance group (*):
Year/month, d: developed / discussed,
i: incidental

FA

See Fundamental analysis

Fad / Fashion



Due to its length, this article
       is in a separate page

of the "F" glossary section

Fair (deal) / unfair

07/10i - 08/6d + See fairness

Fair price / value / valuation



Due to its length, this article
       is in a separate page

of the "F" glossary section

Fairness



See ethic, economic man, fair
price, cheating, moral hazard,

altruism, common good,
genetic utility

No fairness, no deal!

At the difference of the theoretical "economic man", people often take into
account
in their economic decisions and behaviors not only their own
interest but also....

...the fairness to others

    (as a sense of equity , of justice),

...the fairness they expect from others.

...What they consider (rightly or not) the
    "common good",
even if it
    does not fully fits their own economic interests 

or put them at risk,

For example:

When they perform transactions that involve money, many people
    might strive to - or at least argue that they strive to - do it at a "fair

price" (see that phrase) to all parties, whatever that means.

Studies have shown also that people usually do not accept a "take it or

leave it" offer that they consider too imbalanced.

Many will reject that unfair "ultimatum" as an abusive
moral pressure and indignity, even if they would gain
some money by accepting it for a lack of a better choice.

A negative mirror of fairness is envy (see that word), a misattributed feeling
ofinjustice.

Fal - Fat


Dates of related message(s) in the
Behavioral-Finance group (*):
Year/month, d: developed / discussed,
i: incidental

(logical) Fallacy



Due to its length, this article
       is in a separate page

of the "F" section of the Glossary

Fallen angel stocks



Due to its length, this article
       is in a separate page

of the "F" glossary section

Familiarity

07/5i + see home bias,
neighborhood effect

Investors tend to put their money into activities and businesses they feel
close to
them (home bias), geographically, professionaly, mentally or
whatever


Another aspect of familiarity is the "parrot effect".
When an information or opinion is repeated, if only by the same person or
source, it tends to become familiar and is taken a relevant.
Repetitions can give an impression of truth!

Fashion

See fad

Fat tails / wings
   (in distribution curves)


Due to its length, this article
       is in a separate page

of the "F" glossary section

Fe - Fr


Dates of related message(s) in the
Behavioral-Finance group (*):
Year/month, d: developed / discussed,
i: incidental

(Greed &) Fear



Due to its length, this article
       is in a separate page

of the "F" glossary section

Feedback loop /
   positive feedback



Due to its length, this article
       is in a separate page

of the "F" glosary section

Feeling

See emotion,
pain and pleasure

Feelings are physiological perceptions that come

either from sensorial stimuli (leaving the extra-sensorial stuff to
    TV series script writers)

or from emotional reactions to situations (see emotion).

They are more or less pleasant or painful (see pain and pleasure).

They have an influence on decision-making, sometimes at the detriment
of rational criteria
.

Feeling can take over thinking!

Female investing

05/6i + see gender attitude

Fluctuation

See cycle, volatility

Focalism, focusing effect, focalization

See anchoring, reductionism

Follower

See trend following, mimicry,
herding

Foot in the door

00/12i + see commitment
+ bfdef2

Fractals / Multifractals



00/6d,7d,12i - 01/11i -
02/4i - 03/12i - 04/9i,10i
+ 05/2i
+ see chaos theory,
nonlinear + bfdef3

Zigzagging Russian dolls

Definition:


Fractals are broken or branching out lines ("non-linear" patterns) with special 
properties:

The same type of variations seems to repeat itself visually.

Also small variations imbedded in the large ones follow

         the same shape / pattern than those large ones.
         Like Russian dolls
.

This phenomenon by which similarities repeat at different scales is called
"scaling" or "scale invariance".

The study of fractals is a branch of the complex dynamical system theory
(chaos theory).

Fractals, multifractals and market prices

Stock price charts tend to look like fractals.

=> Large / long price variations (in several months or years) have often a
      roughly similar visual shape, but in a bigger scale, to daily ones.

Price variations might also be analyzed as intermingled fractals / trends
(multifractals).

Frame (dependence) / Framing



Due to its length, this article
       is in a separate page

of the "F" glossary section

Fu - Fz


Dates of related message(s) in the
Behavioral-Finance group (*):
Year/month, d: developed / discussed,
i: incidental

Fund manager / management behavior / performance

08/6i + See peer pressure


Do they deliver?

Management hurdles 


Fund manager are often accused of sharing various common professional
biases
, such as overtrading, imitation, peer pressure.

Those habits are said to override rational expectations and wise practices,
and bring counter performances.

This is a debatable generalization as everyone has its own style.

But it is true that some contagion / conformity can take place in some market
circumstances.


The performance puzzle

There are ambiguities about measuring fund
performance
(the famous "alphas") and

finding relevant benchmarks for that purpose.

Popular market indexes are misleading,

* They are focused on one market, thus only one geographical
   and /or on one asset class, they do not represent the entire

range of asset markets.

* Also, in the case of stock indexes, they usually do not include
   dividends
.


Relative performance can be less relevant than absolute
    performance..

An efficient manager should not get stuck to ape an index in
bearish times (except of course is the fund is specifically sold as
an index-related fund.


Also the information on the costs for fund holders is usually not
   fully transparent

Life cycle


It is also often advised not to rely fully on a manager's recent performance.

This is because its management style

(and / or its computer trading system),

that was perfectly adapted to a past market situation

(often just because of luck, by taking advantage of a
buoyant market and taking inconsiderate risks)

might be inadequate, even harmful, when the market
enters new grounds
.

It might be better for clients to hire the managers (or invest in the funds)
with the worst performance in the, say, last three years than those who
were market stars in that period. Of course after analyzing ...why they
missed the trains.

Fundamental analysis (FA), valuation, value

Fundamental financial data

Fundamental investors / traders

Due to their length, those articles
      are in a separate page

of the "F" glossary section

 

Funnel effect

01/1i + see liquidity squeeze

Anticipate the traffic jam
at the expressway entrance or exit!

A funnel effect takes place when a large flow (of liquid, gas, traffic or ...money)
has to go through a narrow passage.

In financial markets, it occurs when too many people try to buy or sell, with
few counterparts.

The result is an illiquidity / a liquidity squeeze 

in which an asset price has either to rise or fall strongly
before any transaction can take place, and a stabler
equilibrium is met.

Why does it happen?

Illiquidity sometimes strike without much forewarning, as sudden
herding (see that glossary article) occasionally does.


Anyway, this phenomenon can have two origins,
so better have antennas that watch the two directions:

Either pure physical scarcity of money or assets,

Or excessive greed, panic, when everybody wants to buy or sell at the
    same time (here is herding),

Or a self-reinforcing combination of both.

Fuzzy logic



Due to its length, this article
       is in a separate page

of the "F" glossay section

(*)To find those messages: reach that BF group and, once there,
     1) click "messages", 2)
enter your query in "search archives".

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 vote on the glossary quality at BF polls

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This page last update: 23/08/15  

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