Behavioural Finance and the Decision to Invest in High Tech Stocks
|Date of publication:||August 2002|
|Working paper number:||119|
Recently, investment in high technology companies boomed as people invested large sums of money even when there was little chance of the company being profitable. This is contrary to classical beliefs that investors have rational expectations and maximise their utility. Instead we must consider the idea that people are irrational and make decisions for many reasons, few of which involve a judicious analysis of the available data. Some individuals are over-confident, whilst others copy the actions of previous investors. This paper attempts to explain why people invested in these companies and concludes that few, if any, investors are totally rational.
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