Stock Market Psychology: Perspectives From Dr. Harrison Hong

There is much traders can gain from an understanding of the best academic research into markets. I recently posted links to four insightful articles from Dr. Andrew Lo at MIT. Here are some gems from Dr. Harrison Hong and colleagues at Stanford:

* Where Stock Market Psychology and Pricing Intersect - This overview article quotes a number of researchers regarding how investor/trader beliefs affect the pricing of assets, with varying degrees of rationality among participants.

* Do Industries Lead Stock Markets? - This article finds that specific industries lead price movements in the broader movement over an intermediate time frame. This appears to be due to the ability of industry movements to forecast economic developments that are slow to impact stocks overall.

* Disagreement and the Stock Market - This is a very thoughtful review article that investigates the roles of trading volume and investor disagreement in generating market returns.

* Thy Neighbor's Portfolio: Word-of-Mouth Effects in the Holdings and Trades of Money Managers - This article shows how trading and investment decisions are like epidemics: they spread from one money manager to another.

* Gone Fishin': Seasonality in Trading Activity and Asset Prices - Here the authors find a seasonal pattern over the summers due to reduced short-term trading.