Correcting Irrational Exuberance: dprime and bias_c
Irrational Exuberance (Greenspan, 1996; Shiller, 2000, 2006) depicts that the volatility of stock market may result partly from investor psychology and as a result investors may bias financial judgments with affective and non-fundamental variables. Yet one lacks a theoretical framework and methodology to separate the affective bias (psychology) from the fundamental sensitivity (economics) in stock or fund judgments. YesWici.com proposes a signal detection theory (SDT) framework and the SDT methodology to separate the bias from the sensitivity based on modeling and computing the data of 11012 funds. With this SDT approach, a seemly good fund with a high return actually may not be a good choice for investing because its fundamental sensitivity may be weak. Hence, the irrational exuberance for the fund may be corrected with the fundamental sensitivity indicator. The searchable results on the sensitivity (dprime) and bias (bias_c) for these funds are available at YesWici.com.