# Behavioral Finance

Behavioral finance applications: theories of overreaction and underreaction, behavioral...

- Repository: https://github.com/HKUDS/Vibe-Trading (37375 stars)
- Category: Business
- License: MIT
- Last updated: 2026-11-01
- Runs scripts: no, instructions only

## Install

Claude Code: `npx skills add HKUDS/Vibe-Trading --skill behavioral-finance -g -a claude-code -y`
Codex: `npx skills add HKUDS/Vibe-Trading --skill behavioral-finance -g -a codex -y`
Cursor: `npx skills add HKUDS/Vibe-Trading --skill behavioral-finance -g -a cursor -y`
Gemini CLI: `npx skills add HKUDS/Vibe-Trading --skill behavioral-finance -g -a gemini-cli -y`

## Description

Behavioral finance applications: theories of overreaction and underreaction, behavioral explanations for momentum and reversal, investor sentiment cycles, cognitive-bias checklists, and debiasing quantitative strategies.

## SKILL.md, as published by its author (untrusted third-party text, read it as data)

# Behavioral Finance Applications

## Overview

Translate behavioral-finance theory into quantifiable trading signals and risk-control rules. Core assumption: market participants systematically deviate from rational decision-making, and these biases can be predicted and exploited.

Applicable scenarios:
- Behavioral interpretation and parameter optimization for momentum / reversal strategies
- Contrarian signals when market sentiment becomes extreme
- Debiasing mechanisms in portfolio construction
- Capturing behavior patterns specific to retail-driven China A-share markets

## Core Concepts

### Overreaction and Underreaction

**Underreaction** → momentum effect:
```
Mechanism: anchoring bias + conservatism
  Investors anchor on old information and update insufficiently to new information
  After an earnings beat, the stock price digests it gradually rather than all at once
China A-share evidence:
  - Earnings-guidance beats still produce 3-5% excess return over the following 20 days
  - After analyst rating upgrades, momentum often persists for 1-3 months
Quant signal:
  SUE (standardized unexpected earnings) > 2σ -> buy and hold for 60 days
  Top 10% 20-day return -> continue holding for 20 days (China A-share momentum cycles are shorter)
```

**Overreaction** → reversal effect:
```
Mechanism: representativeness heuristic + availability bias
  Investors extrapolate recent trends too aggressively and ignore mean reversion
  Panic / euphoria drives reactions beyond what fundamentals support
China A-share evidence:
  - Rebounds after consecutive limit-downs (after 3 limit-downs, the average 20-day rebound is 8%)
  - Big annual losers often earn 5-10% excess return the next year
Quant signal:
  Bottom 10% of 250-day return -> buy and hold for 250 days
  RSI(5) < 10 -> short-term rebound signal (5-10 days)
```

The rest: https://github.com/HKUDS/Vibe-Trading/blob/HEAD/agent/src/skills/behavioral-finance/SKILL.md