Victor Ricciardi is an Assistant Professor of Financial Management at Goucher College. Professor Ricciardi is a leading expert on the academic literature and emerging research issues in behavioral finance. He is the editor of several eJournals distributed by the Social Science Research Network (SSRN) at www.ssrn.com, including behavioral finance, financial history, behavioral economics, and behavioral accounting.
1. What’s the bias with the biggest impact that’s the least understood or noticed?
2. Wisdom of the crowd usually exists only when there’s a diverse population. Given the typical investor is pretty homogenous (white, affluent), should we expect the wisdom of the crowd to not apply to the stock market? What about changing demographics with whites becoming a minority and women now earning more bachelor’s degrees than men?
3. Financial literacy scores in the US are pretty dismal, which to me really calls into question the validity of the Efficient Market Hypothesis. How can we improve financial literacy?
4. Investors nearing or reaching retirement are often those searching for yield. In a low interest rate environment like today, that yield is often unavailable without considerable risk attached. Do you think there’s a lot of unknown risk being assumed right now by people who can least afford to take it?
5. Conventional academic wisdom has it that the price of a security going down means there’s greater risk (due to a higher beta), and that risk and return are positively correlated. Value investors believe that a lower price, all things equal, actually represents less risk while offering a greater potential reward. What are your thoughts on the subject?