Negativity Bias: Triggers Investors' Selling Reflex

Psychological Factors Shaping Investor Behavior

A behavior observed in the investment world is that investors generally show excessive sensitivity to negative news. The human brain, by its nature, tends to prioritize "negative developments." This psychological tendency can lead to erroneous investment decisions and financial losses in the modern finance world.

The Impact of Negativity Bias on Investment Decisions

According to MarketWatch writer Mark Hulbert, "negativity bias" refers to investors' tendency to give more importance to bad news. When both positive and negative news emerge about a company, investors often focus on the bad news rather than making a rational assessment. As a result, they adopt an unnecessarily pessimistic attitude and may make wrong decisions.

Research on Conflicting News and Stock Performance

A research team from the University of Miami and the University of Exeter conducted a significant study examining how conflicting news affects stock performance. The research analyzed millions of articles published about publicly traded companies since 2000. The results revealed that stocks subject to conflicting messages perform worse than stocks receiving neutral news.

Hershey Case Study

Hulbert cites a recent case involving Hershey's stock. An article titled "As Cocoa Prices Stabilize, Hershey Raises Outlook" in the Wall Street Journal presents an optimistic headline, yet the content emphasizes negative data about the company's declining sales. This contradiction led to Hershey's shares losing 2.5% on the day the news was published and a total of 5% in the following days.

Artificial Intelligence and Information Filtering

Hulbert discusses how effective it might be for investors to turn to artificial intelligence solutions to overcome negativity bias. However, Kumar expresses skepticism, stating that even artificial intelligence carries similar biases. Professor Philip Resnik from the University of Maryland notes that biases in AI reflect a condition inherent in human thought processes.

Conclusion and Common Sense for Investors

Finally, it is emphasized that investors face the challenge of developing complete objectivity in portfolio management. Investors must confront their psychological biases as well as the news from the outside world. Achieving this balance can help them make more conscious and successful investment decisions.