<aside> 💡 Based from Coursera MOOC 2: Module 1 and Live Lecture on 29 November 2023

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Learning Objectives:

LO#1: Describe the evidence regarding the performance of individuals’ stock investments

LO#2: Explain overconfidence and its effects on financial decisions

LO#3: Explain loss aversion and its effects on financial decisions

Lesson 3-1: Overview of the Performance of Individual Investors

Recall

Transaction Costs

Portfolio Turnover

Individual Performance of Investors

Notes

• Commissions/fees for trading paid to the brokerage

• Bid-ask spread (when buying a stock, pay the "ask"; when selling a stock, pay the

• Investors are risk-averse

• how much an investor trades

• Buy (sell) turnover = $ value of buys (sales) / beginning of period $ value of portfolio

• average of the buy and sell turnover (monthly, annually, etc.)

• overall deteriorating

Lesson 3-2: Key Behavioral Biases of Individual Investors

Recall

Overconfidence

Loss Aversion

Notes

• no straight answer from Coursera videos

Option Primer

Date: November 29, 2023

Introduction

Recall

Derivative Securities

Purposes:

Hedging

Speculating

Classification:

Linear Derivatives

Non-linear derivatives

Notes

• derivative instrument; derivative

• payoff depends explicitly on the price of some other security (the underlying security).

• $P_{derivative}$ closely linked to $P_{security}$

• $\downarrow$ risk possibly at the cost of $\downarrow$ R (expected return).

• focus on risk

• $\uparrow$ R at cost of $\uparrow$ risk

• Like in stocks (build expectation

• payoff depends linearly on underlying security price.

• example: forwards and futures

• payoff depends linearly on underlying security price.

• ex: options

Options

Recall

Options

Types:

Call Option