We have just posted the first working paper in our “Cognitive Finance Series”. Below is the abstract. To download the paper click this link.
The holy grail of manager selection is to identify those individuals who will outperform the market over the long term. Formal academic inquiry in the past has focused on the study of correlational attributes such as social networks,specialization and pedigree. In contrast, investigation into cognitive aspects of portfolio managers – how they perceive, assess, evaluate and process information to arrive at an investment decision – might allow us to isolate and identify causal factors in out-performance. The thesis discussed in this paper, that transfer and analogical reasoning in other domains can explain the mechanism by which portfolio managers analyze companies, is a first step in demystifying the analyst’s cognitive process. Different mechanisms of transfer have been documented by the empirical studies in different fields discussed in this paper. We have shown conceptually that the field of security analysis shares the same underlying structures as these other domains.