A Century of Investotrs

A CENTURY OF INVESTOTRS:

Research reveals that investors from time immemorial have portrayed similar traits over decades, from century to century. The outstanding difference between the older investors can only be attached to the ever-progressing technological advancements. Today’s investors are more rapidly informed compared to the older investors. This is simply because the advanced information technology has enhanced efficient dissemination of financial information about the security markets news as they happen. We would expect this to impact on the investors’ behavior in some way, to be better informed but unfortunately this is not the case. The behavior and characteristics of investors hardly change, (Statman and Meir, 2013).

Similarly, both macro and micro analysis of the security markets have shown that there have ever been almost similar variations in the market and price movements from time to time. So, there is nothing new different from the past financial market conditions and today’s situations. Security markets normally exist in either of two conditions at a certain period. In a bull market prices are rising or are forecasted to rise. The term "bull market" is most often used to refer to the stock market, but can be applied to anything that is traded, such as bonds, currencies and commodities. On the other hand, a bear market is one that is in decline. Share prices are continuously dropping, resulting in a downward trend that investors believe will continue in the long run, which, in turn, perpetuates the spiral. During a bear market, the economy will typically slow down and unemployment will rise as companies begin laying off workers.

Different stocks have different levels of volatility. The term volatility here refers to variation in level of riskiness of a security owing to the existing economic parameters. A lower volatility means that a security's value does not fluctuate dramatically, but changes in value at a steady pace over a period of time. One measure of the relative volatility of a particular stock to the market is its beta. From   Statman and Meir, 2013 for example volatility of the stock after every two decades had always been lower as evidenced by the analysis result of 1901-1920 which had a monthly standard deviation of 5.34% and that of 1981-2000 had monthly standard deviation of approximately 4.38%. These results to a larger extent show that the security markets were stable and were bullish. Higher stock volatility however is mostly associated with bearish market.

Market anomalies also feature out strongly in history and are still an ongoing aspect of security markets. In financial markets, anomalies refer to situations when a security or group of securities performs contrary to the notion of efficient markets, where security prices are said to reflect all available information at any point in time. According to Statman and Meir, 2013 for example, investors realized that wars can bring profits as well as losses. The war stocks which were stocks of companies that produced steel, munitions and other materials for war effort made DJIA increased by 81.66% points. Today’s markets are further faced with anomalies such as calendar effect, size effects among others.

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