Behavioural Finance
Subject Overview
The third Finance group elective, covering the theories of behavioural finance versus rational expectations, behavioural aspects of investing (heuristics, biases, overconfidence), investor behaviour types and market bubbles, and models of investor sentiment and behavioural corporate finance. A 4-credit elective theory paper.
Unit-wise Syllabus
4 units — click WhatsApp below to get the full notes for each
Unit 1: Introduction to behavioural finance
Meaning, features and scope of behavioural finance, rational expectations paradigm and the behavioural challenge, agency theory, prospect theory, reasoned emotions, neo-classical finance and the Efficient Market Hypothesis
Unit 2: Behavioural aspects of investing
Heuristics and biases, self-deception, emotional and social forces, firm-size effects, momentum vs reversal, noise trader risk, mental accounting, overconfidence, excessive volatility, loss aversion, gambler's fallacy
Unit 3: Investor behaviour
Types of investors by risk appetite, conformity and contrarian investing, group psychology on the board, resistance to recognizing failure, conflict of interest, value vs growth investing, stock market bubbles
Unit 4: Investor sentiment and corporate finance
Model of investor sentiment, market efficiency and biases in brokerage recommendations, evidence on cross-sectional stock return variation, behavioural corporate finance