Think Piece – What behavioural finance tells us about communicating to investors

A field of study called behavioural finance has grown, based on cognitive psychology, to account for the irrational and illogical behaviours that modern finance theory has failed to explain. It has been applied to decision making by investors, but, as far as we know, it has not been applied to investor relations. And yet, this is the other side of the same coin and an appreciation of this subject can help IROs be more persuasive when they communicate their investment proposition.

Briefings

How understanding instability in financial markets can make you a better communicator

Financial markets are inherently instable. This is a statement of the bleeding obvious for investors left recoiling from the most recent financial crisis or hedge fund managers that seek to profit from its volatility, although you are less likely to hear the same words from your pension advisor or bank manager. At the heart of this instability is human behaviour as recent turmoil in the financial markets attests.

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Guiding the herd and what household energy consumption tells us about managing consensus

Managing consensus is a primary responsibly of IROs and, although not immediately apparent, is at risk from the same social biases that drive herd behaviour and result in investment bubbles. A complex interaction between companies, regulators, analysts and investors has generated a debate around the how companies should manage consensus. This briefing applies the theories developed in the field of behavioural finance to illuminate the debate and makes a number of recommendations for communicating consensus.

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‘Don’t shoot the messenger’ – the growing need for IROs to seek out bad news and how not to damage your career prospects when delivering it to the board.

Investor relations is usually associated with conveying a company’s investment proposition to external audiences, but its role in providing feedback from investors to executives is equally important. A number of topics around investor engagement have become more prominent and highlight the communication challenges involved in conveying feedback to senior management.

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Briefing notes on behavioural finance

For further background on the subject of behavioural finance and the principles behind this series of briefings click here