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What Do Humans Perceive in Asset Returns?

Jasmina Hasanhodzic, Andrew W. Lo and Emanuele Viola
The Journal of Portfolio Management April 2019, 45 (4) 49-60; DOI: https://doi.org/10.3905/jpm.2019.45.4.049
Jasmina Hasanhodzic
is an assistant professor of finance at Babson College in Wellesley, MA
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Andrew W. Lo
is the Charles E. and Susan T. Harris professor at the MIT Sloan School of Management, director, MIT Laboratory for Financial Engineering and a principal investigator at the MIT Computer Science and Artificial Intelligence Laboratory in Cambridge, MA
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Emanuele Viola
is an associate professor of computer science at Northeastern University in Boston, MA
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Abstract

In this article, the authors run experiments to test if and how human subjects can differentiate time series of actual asset returns from time series that are generated synthetically via various processes, including AR1. In contrast with previous anecdotal evidence, they find that subjects can distinguish between the two. These results show that temporal charts of asset prices convey to investors information that cannot be reproduced by summary statistics. They also provide a first refutation based on human perception of a strong form of the efficient-market hypothesis. Their experiments are implemented via an online video game (http://arora.ccs.neu.edu). The authors also link the subjects’ performance to statistical properties of the data and investigate whether subjects improve performance while playing.

TOPICS: Portfolio theory, statistical methods

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The Journal of Portfolio Management: 45 (4)
The Journal of Portfolio Management
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April 2019
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What Do Humans Perceive in Asset Returns?
Jasmina Hasanhodzic, Andrew W. Lo, Emanuele Viola
The Journal of Portfolio Management Mar 2019, 45 (4) 49-60; DOI: 10.3905/jpm.2019.45.4.049

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What Do Humans Perceive in Asset Returns?
Jasmina Hasanhodzic, Andrew W. Lo, Emanuele Viola
The Journal of Portfolio Management Mar 2019, 45 (4) 49-60; DOI: 10.3905/jpm.2019.45.4.049
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