The Pacific Futures Trading Company

In: Business and Management

Submitted By tjboll24
Words 1292
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© Roger Bougie 2011

CASE ANALYSIS: SCIENTIFIC INVESTIGATION

THE PACIFIC FUTURES TRADING COMPANY

For some time, theoretical and empirical evidence suggested that the Efficient Market Hypothesis, the Capital Asset Pricing Model, and other rational financial theories did a good job of predicting and explaining the behavior of investors. However, recently, the ‘rationality’ of financial markets - and more specifically investors - is a hot topic in the financial economics literature. Recent research has argued and shown that investors often make mistakes; they behave irrationally and exhibit a number of financially damaging biases, such as loss aversion, herding, overconfidence, and overreaction (Barber and Odean, 2001; DeBondt and Thaler, 1986; Fischoff and Slovic, 1980; Gervais and Odean, 2001; Huberman and Regev, 2001; Kahneman and Tversky, 1979). These irrationalities are frequently attributed to psychological factors such as fear, greed, regret, and other emotional responses to price changes and changes in personal wealth. A growing number of economists, psychologists, and financial-industry professionals have begun to use the terms ‘behavioral economics’ and ‘behavioral finance’ to differentiate themselves and their ideas from the standard, rational theories (such as the Efficient Market Hypothesis) in economics and finance.

Akrisios Stathopoulos is the President of the Pacific Futures Trading Company (PFTC). Futures trading is a form of investment which involves speculating on the price of a commodity, such as gold, cotton, wheat, or steel, going up or down in the future. Futures are popular instruments amongst traders, from private individuals through to multi-million dollar hedge funds. Founded in 1972, the Pacific
Futures Trading Company is a second generation family owned business. With Akrisios as President, his brother Epifanio as Vice President of…...

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