DEFINITION of 'Attribute Bias'

The tendency of stocks selected by a quantitative technique or model to have similar fundamental characteristics, such as high yields and low earnings valuations. Most investing models that provide investment choices as an output will have to establish parameters that, by definition, will exclude certain stocks and offer ones with similar traits in return.

BREAKING DOWN 'Attribute Bias'

An investing or research technique that produces choices with attribute bias is not necessarily a bad thing; the biggest danger is that the stocks may correlate closely in their returns, eliminating some of the value of a diversified portfolio. One thing in particular to watch out for is investing in several companies operating in the same industry, as industry peers will often have similar fundamental values.

RELATED TERMS
  1. Bias

    Biases are human tendencies that affect our behavior and perspective, ...
  2. Quantitative Trading

    Trading strategies based on quantitative analysis which rely ...
  3. Comparable Company Analysis - CCA

    A process used to evaluate the value of a company using the metrics ...
  4. Home Bias

    Home bias is the tendency for investors to over-invest in domestic ...
  5. Fundamentals

    The qualitative and quantitative information that contributes ...
  6. Quantitative Analysis

    A business or financial analysis technique that seeks to understand ...
Related Articles
  1. Investing

    Behavioral Bias: Cognitive Versus Emotional Bias in Investing

    We all have biases. The key to better investing is to identify those biases and create rules to minimize their effect on investing decisions.
  2. Investing

    4 Biases That Can Make You A Bad Investor

    Find out how to spot these four biases, and start making more logical investing decisions.
  3. Investing

    5 Mental Mistakes That Affect Stock Analysts

    They know more about stocks than the average person, but analysts are still affected by biases. Find out what they are.
  4. Insights

    The Fed Model And Stock Valuation: What It Does And Does Not Tell Us

    Learn about this popular stock market valuation model and how accurate it has been over the years.
  5. Personal Finance

    How to Think About College as an Investment

    If you view college as an investment, the costs and risks must be weighed against potential returns.
  6. Investing

    4 Reasons Why Selling Is Harder Than Buying

    Understand why selling stocks is harder than buying them, and develop strategies for establishing investment goals with price targets.
  7. Trading

    3 Psychological Quirks That Affect Your Trading

    There are human tendencies that can block our financial goals. Here's how to get around them.
  8. Investing

    Top Reasons IPO Valuations Miss The Mark (MS, ZNGA)

    The costly services of investment banks don’t necessarily guarantee accuracy in IPO pricing.
  9. Investing

    Relative Valuation: Using Stocks To Value Other Stocks

    This effective approach will help you understand which stocks you should be investing in.
  10. Investing

    A Beginner's Guide to Growth Investing

    Learn growth investing strategies and techniques across asset types. Find out how to research and analyze key fundamental data to evaluate growth stocks.
RELATED FAQS
  1. When does a growth stock turn into a value opportunity?

    Learn how fundamental analysts use valuation measures, such as the price-to-earnings ratio, to identify when a growth stock ... Read Answer >>
  2. What are some common traits of undervalued stocks?

    There are a few basic factors found in companies that are worth more than their current stock price. Read Answer >>
  3. What is the difference between financial forecasting and financial modeling?

    Understand the difference between financial forecasting and financial modeling, and learn why a company should conduct both ... Read Answer >>
  4. What is the difference between financial forecasting and financial modeling?

    Understand the difference between financial forecasting and financial modeling, and learn why a company should conduct both ... Read Answer >>
  5. What are some examples of different types of business models in major industries?

    Learn what types of business models are currently being used in the marketplace as well as examples of models that work for ... Read Answer >>
Hot Definitions
  1. Return On Equity - ROE

    The profitability returned in direct relation to shareholders' investments is called the return on equity.
  2. Working Capital

    Working capital, also known as net working capital is a measure of a company's liquidity and operational efficiency.
  3. Bond

    A bond is a fixed income investment in which an investor loans money to an entity (corporate or governmental) that borrows ...
  4. Compound Annual Growth Rate - CAGR

    The Compound Annual Growth Rate (CAGR) is the mean annual growth rate of an investment over a specified period of time longer ...
  5. Net Present Value - NPV

    Net Present Value (NPV) is the difference between the present value of cash inflows and the present value of cash outflows ...
  6. Price-Earnings Ratio - P/E Ratio

    The Price-to-Earnings Ratio or P/E ratio is a ratio for valuing a company that measures its current share price relative ...
Trading Center