(News Bulletin 247) – In this period of dense corporate results, investors are likely to adopt cognitive biases. Guest of BFM Business, Julien Nebenzahl, wealth solutions manager at eToro, discusses these different attitudes that investors can have during these strong times on the markets.

Earnings season is considered a key period during which investors can gauge company performance. Over the week which has just ended, no less than 19 CAC 40 companies submitted their copy with varying degrees of success.

Can behavioral finance help investors better approach this fairly dense period of financial information? Julien Nebenzahl, wealth solutions manager at eToro, answered this question in the BFM Business show “Tout pour Invest” on October 21.

The subject deserves to be addressed, argues Julien Nebenzahl, even if according to him, corporate publications and behavioral finance are, at first glance, themes which are not linked.

“Companies publish data that belongs to the past, and contains no anticipation, no particular emotion. Collectively, the market is guided by this idea that the corporate results season is the great meeting of rationality. That is to say that prices will react to pure, concrete, non-emotional and past information. However, behavioral finance shows that agents are not necessarily rational, which is different from classic finance based on information. rationality of agents”, explains the specialist.

“When the company publication is revealed, it arrives in a subjective market context for obvious reasons since it carries anticipations. The price is the comparison of everyone’s anticipations. Thus, the movement on the stock on the stock market after the publication is not the observation of the figures revealed but the translation between the publication and the expectations of the markets We are not talking about integration of information, but of adjustment of expectations”, continues Julien Nebenzahl.

The three behavioral biases

In reality, investors do not behave rationally in a large number of situations, recall French researchers Mondher Bouattour and Anthony Miloudi in a 2016 study entitled “Behavioral finance and asset price dynamics: An application by the experimental method”.

On this subject, Julien Nebenzahl describes three classic behavioral biases that fuel the trend in a stock during earnings season.

Among these behavioral biases, Julien Nebenzahl first cites the “disposition effect”. This effect, which is classic in behavioral literature, is defined as a tendency for an individual to take profits relatively quickly and not to sell securities on which they are making a loss.

“When the publication arrives, if it allows a small increase in a stock on which we are in profit, we will tend to say that goes in my direction, the news has arrived, it is confirmed so I can take my profit Conversely, when negative news falls on a downward trend, and on which we are in loss, the decline which will become even more pronounced, will paralyze us even more, in a way, and prevent us from exiting this position. We will find this market reaction exaggerated and we will try to find explanations to reassure ourselves,” remarks Julien Nebenzahl. “It’s a relatively classic effect that we can observe in company publications,” he adds.

Even more classic than disposition bias, Julien Nebenzahl also cites “confirmation bias”, which results in excess confidence in one’s personal belief. When a publication comes out and it goes in the direction of the investor, the latter does not try to analyze anything. In this favorable context, the specialist recalls that the investor does not seek to review his expectations, and that he is confirmed by the announcements in his own anticipation.

Julien Nebenzahl also discusses the “recency bias” or immediately available information. This cognitive bias which is characterized by an investor’s attachment only “to what has just been said at the time of publication without looking at the entire market context”.

Practical case: the warning on ASML results

Julien Nebenzahl also had the opportunity to comment on the recent publication of the Dutch group ASML. The third European company in terms of market capitalization, behind Novo Nordisk and LVMH, completely missed the boat both in the timing of the announcement and in its content itself.

The group published its results in advance on Tuesday evening at the meeting, since its accounts were to be communicated the next day.

“It’s abnormal for a company of this size to publish results in the middle of the stock market day,” criticized Eric Bleines, general manager of Swiss Life Gestion Privée, on the News Bulletin 247 show. To make matters worse, the group had published disappointing order intake and lowered its targets for 2025.

“We are in the typical case of the arrival of bad news within a downward trend. Among ASML holders, this warning on results has raised questions. We may be in the effect of disposition, that is to say that the stock has fallen a lot, there is this news which arrives in addition, and the investor says to himself that he should wait a little bit before selling”, analyzes Julien Nebenzah.

“The fact that this warning did not materialize in the expected time creates even more anxiety on this issue. In this specific case, we do not lack emotion, we carry a lot of emotion, there is no have no hesitations about that,” he believes.

During the 2024 half-year results season, investors had already had a heavy hand, inflicting severe corrections on companies that had disappointed, even a little.

In a previous article, we compiled a compilation of stock market reactions during the session following the publication of CAC 40 companies. Either the same day for companies announcing their results in the morning, or the next day for groups which published in the evening, like LVMH and Michelin.

On the side of the biggest increases, we found in the first three places Teleperformance (+10.4%), Essilorluxottica (+7.4%) then Legrand (+6.5%). On the other side of the spectrum, there were numerous and violent stock market sanctions this season. STMicroelectronics had suffered the biggest fall, with a decline of 13.8% after lowering its turnover forecast for 2024. Edenred’s plunge (-13.5%) was much less intuitive because the results proved to be superior to expectations.

“We have seen an asymmetrical reaction from the markets, especially in recent days, with companies finally publishing good results and experiencing moderate increases from time to time while the lowlifes paid very dearly,” he said. declared in News Bulletin 247 Matthias Desmarais, head of research at Oddo BHF to summarize these stock market reactions during this summer publication season.