Royal Roads School of Business Associate Prof. Hany Fahmy spoke with BCBusiness about his newly published theory that could help investors optimize their assets during economic crises.
Here is an excerpt:
Irrational investors overreact to bad news—which gets amplified by social media—and decide to exit, Fahmy observes. “But what about rational investors?” he asks. “What about those trained fund managers? Why were rational and irrational investors all behaving in the same way? My extension [of Harry Markowitz’s theory] explained that.”
Fahmy’s recommendation: “For rational investors after the realization of financial shock, long-term duration strategies are more rewarding than short-term strategies,” he says. “Instead of overreacting to financial news immediately, if you waited a few weeks rather than exiting the markets, you would be better off.”