Image credit: “Loop the Loop, Luna Park, Coney Island,” photograph, ca. 1903, Library of Congress
By Jason Zweig | Apr. 14, 2016 2:14 pm ET
The latest newsletter from Matarin Capital Management, a Stamford, Conn.-based firm that runs about $700 million in assets, offers a simple visual reminder that investors often perceive the stock market to be more volatile than it is.
Viewed daily over the 12 months that ended March 31, the S&P 500′s moves look superficially like the EKG of someone having a heart attack. Viewed quarterly, they resemble a shruggie emoticon without the smirk. And seen over the full sweep of the last 12 months, the market’s moves look like a whole lot of nothing happening in slow motion.
As Stuart Kaye and his partners at Matarin write, “Because volatility spikes are shorter-term phenomena, they heighten investor awareness and attention on a short-term basis. In behavioral finance, the overconfidence bias tell us three key things: that information overload leads to overconfidence, that overconfidence leads to overtrading and that overtrading leads to underperformance.”