Does someone have a brief definition/explanation of this?
Two years ago, XYZ stock (which I own) had a return of 15%.
Last year, XYZ stock had a return of 15%.
This year, XYZ stock is on track for a return of 15%.
Clearly, XYZ stock will have annual returns of 15% for the foreseeable future.
alright, so you naively extrapolate past experiences into the future without a valid reason. Thanks again, s2k!
S2000 explained it perfectly. It’s really just being naive when trying to forecast the future and assuming that historical data is a good indicator of future performance.
So how is this different from Halo effect? The definition I have for halo effect mentions “investors extrapolate past performance into future expected returns.” Thanks for any clarification.
Halo Effect has more to do with focusing on some positive aspect, and ignoring other not necessarily positive ones. For example, if a company is really good at one thing in particular (think Apple and iPhones), we assume it will be good at other things as well.
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