Stress and Short-Termism (.pdf)

We always assume rationality of our market participants, but are they? Are you? One argument against this rationality is the way humans are “wired.” As a result of this wiring homo sapiens have developed a fight or flight response that while may serve us well in the event of physical danger, may be counter productive when facing financial risks. That is in times of severe stress we may behave differently. Mauboussin and Bartholdson examine this response and suggest that it may be behind the high turnover and short-term orientation of many investors (both individual and institutional). [FinanceProfessor Annotation]