Behavioral finance FAQ / Glossary (V-Z)

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Val


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

(asset, stock) Valuation

Value

(fair) price / Value, valuation

(economic / expected / intrinsic)

    stock Value

(extrinsic) Value

Value / valuation

Value / valuation

Value / valuation

 

Value / valuation

Value / valuation

 

 

Value investing

 

Value invest.

 

Value puzzle

Value / valuation

 

 

Value stock

Value trap

 

Value invest.

Value invest.

 

Vi


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

Vicious / virtuous circle



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

of this "V-Z" glossary section

Viral communication



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

 of this "V-Z" glossary section

Virtual economy

07/05d

Vo


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

Volatility

(excess) Volatility

(downside) or (semi-) Volatility

Volatility cluster

Volatility smile

Volatility puzzle

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

 of this "V-Z" glossary section

 

 

 

We


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

Weak, neglected, overlooked signal



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

 of this "V-Z" glossary section

Wealth effect

03/2i + see house money effect

Burning money when feeling rich.

Definition:

The wealth effect (or affluence effect) is the tendency of people

to spend more than their income in bullish periods.


How it works ...and might end

This behavior is because they feel richer as long as the prices of stocks,
real estate or other assets they own keep rising
.


Not only their shopping binge amputates their other savings, but they
     often borrow
on the basis of the value of those assets to finance such
     spending.

They might discover later that asset markets become bearish.
Sudden poverty effect?

Here the mental accounting (see that word) is reverted.

The wealth effect considers all money at hand as spendable, whatever the
differences in volatility / safety.

Economic consequences

Fine for everybody ...until it backfires.


Overspending (whether it is due to a wealth effect or to a lack of income)
tends to boost
the economy, and sometimes to overheat it.

=> The artificial prosperity finds its limit when prices rise too blatantly above
      fundamental
values and create a bubble. It ends into a market crash.

Then many asset owners realize that they are less rich than they
thought
,that they could not afford to spend so much, that they accumulated
too much debt or did not save enough.

This incites them to put a brake on such spending.

Such a belt-squeezing can spread to many people and bring a general
economic backlash.

Wealth frame

03/2i + see frame

Weather bias / effect

03/8i,12i + see
also calendar effect.

Some studies has shown that markets are more bullish / optimist when there is
good sunny weather.

Physiological and physical feelings of pleasure or pain are factors that
trigger related emotions such as optimism or pessimism.

Wil - Wis

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

(bounded) Willpower

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

of this "V-Z" glossary section

Winner's curse

Due to its length, this article

       is in a separate page

of this "V-Z" glossary section

Wisdom

See rationality

Wishful thinking



02/8i - 03/1i + see optimism,
overconfidence, magical thinking,

commitment, belief rationalization
+ bfdef2

Trusting a rosy vision?

Wishful thinking (or need to believe), is a form of blind optimism
(see that word), by which people prefer to interpret situations as leading to
a
pleasant outcome and avoid to embrace the idea that less rosy realities
are possible.

 They see the future not as it can be seriously anticipated, as
 they prefer to chose the scenario that matches the best what
 they wish.  

How frequent, and why?

It is a common bias among human beings, that
might come from
their aversion to the pain of

uncertainty.

It can be interpreted as a desire by people to feel good and avoid
mental discomfort
,
by considering that:

Things will come out right for them,

They can mentally influence destiny (see magical thinking).

More generally, there seems to be among humans, not only an uncertainty
aversion
, but also a "need to believe" in happy endings.

It might give them a reassuring vision of the world, helping them to accept
it better.

Useful or harmful?

Dreams and reveries are good
for your mind and your health,

but don't let them become traps!


Wishful thinking, that combine optimism and cognitive dissonance, can be:

In some cases a moral help to keep on living and striving
  
among overwhelming difficulties.

Faith / optimism might even be a good health factor.

  In other cases an incitation to hyperactive hubris or on the
    contrary to passivity
.

Wishful thinking in investing


An example in investing is that, after investing in a stock with disappointing
results, investors tend to find good reasons (rationalization) that it will
make it a winner in the end, while neglecting the adverse aspects.

X - Z


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

Yin-yang asset valuation

See fundamental, image

Yin-yang asset valuation combines

hard parameters (see fundamental analysis)

and soft ones, namely behavioral factors (see "image").

It is more flexible than binary analysis (if one-sided researches or presentations
can be called analysis).

Binary logic focuses blindly on the yes / no answer, the
  
one cause - one effect analysis, it rejects any alternative possibility.

It thus tends to privilege only one type of factors / parameters when
used for asset valuation.

On the contrary, a yin-yang combination of two seemingly exclusive
  
factors takes into account that:

* They do not just oppose / contradict each other,

* But also intermingle and balance / compensate / support each other
   in a dynamical way
(see range estimate aversion, fuzzy logic...).

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

Members of the BF Group, please
 vote on the glossary quality at BF polls

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This page last update: 28/08/15  
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