Introduction

Two of the most important practical implications of prospect theory in asset pricing are the existence of price momentum, and investors’ preferences for skewness in the distribution of returns.

Part of the Finology short course, Behavioural Finance - Investment Decision-Making, this lecture explains why these phenomena persist and practical ways they can be exploited.

Topics include:

• the Jegadeesh & Titman trading strategy;
• other research and studies into momentum methodologies used in other markets;
• the attributed (behavioural) limi...