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B. G., Opalesque Geneva: According to Nobel Prize winner Richard Thaler, who used psychology to explore the cognitive biases of investors, investors generally feel the pain from losses twice as much as pleasure from gains, judgment on investment is skewed by an initial piece of information or experience, and investors assign excessive value to what they already own in their portfolios.
"At J8, we coin these traits the 'attachment bias'," says Dr.Tillmann Sachs of J8 Capital in a recent paper. "Investors chasing performance and holding on to loss-making positions while selling profitable trades prematurely are the hallmarks of such attachment bias."
A solution to that bias is systematic, rules-based investing, he continues.
His managers spend considerable time and effort when developing their strategy to avoid such behaviour. "We choose parameters and explanatory models such that we deliberately avoid behavioural attachment bias," he explains. "By combining distinct and independent signal engines, we built an overall unbiased model that is yet adaptable to change.
"Importantly, we want the model to work with a wide range of changes within each parameter and thereby avoid overfitting. For this purpose, we test a wide range for each parameter for each variable in each model and do so in ...................... To view our full article Click here
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