Money is an emotional topic, and many have allowed emotions to get the better of them when handling investments. To help keep one’s cool in any market condition, exchange traded fund investors should have a methodical strategy in place.
According to the researchers from the Brazilian School of Public and Business Adminstration, the University of California Berkley and San Francisco State University, emotional excitement can add fuel to an asset bubble, writes Sheyna Steiner for Bankrate.
“Our underlying motivation is the hypothesis that, once started, real-world bubbles generate excitement and that excitement further inflates and sustains the bubble,” the researchers wrote in the paper, “Bubbling with excitement: An experiment.”
In the academic study, participants either watched an exciting, scary or calming video and were then told to trade fictional assets for real money. In the scenario, participants who watched an exciting video saw assets rise faster and hit a higher peak than asset prices after watching scary or calming videos. The researchers found that excitement helped bubbles grow bigger and more quickly.
While it is fun to chase after high-flying stocks, traders may get burned if the securities suddenly take a turn. Consequently, investors should have a plan in place to keep emotions in check and invest on predefined indicators.