See Psychology & Behavioral Finance.
The following is from an article in Business Times:
Fear and greed are an investor's greatest enemies
Some interesting studies have been done in the US relating to the average return achieved by average investors over extended periods. Both the Morningstar and Dalbar Inc studies show that where the market achieved an average return of 12% a year, the average investor achieved a loss of 2% a year over the same period. In other words, you are not alone if you are making poor returns on your investments - most people are going backwards!Why should this be the case?
Is it simply because the average investor experiences the two "investment emotions" almost all the time? Fear and greed lurk in the background of their decisions. Then along comes a well-meaning "Pied Piper" in the form of an investment newsletter, a newspaper reporter, or a radio journalist with a specific theory of what the market is about to do and the investor, "warped by lurking fear and greed", makes a radical decision.
From the information on capital flows it is clear that the average investor buys high and sells low. This can only be explained by greed (when everyone else seems to be making money) and fear (when there is "blood on the streets").
Fear and greed may interfere with discipline -- Money Skill #27. If fear and greed cause you to do the opposite of what you should, then they're related to psychological reversal -- Money Skill #17.
