behavioral finance Assignment example
Ph.D.
Assignment
Finance & Accounting
Pages 10 (2510 words)
Download 0
BEHAVIORAL FINANCE Student’s name Course title Tutor's name Date PART 1 Section A Behavioral finance refers to the study of the influence of psychology on people in the financial sector and its perceived overall influence on financial markets. This in essence means it is a combination of finance and psychology to determine and explain how and why people tend to make illogical and inherent decisions when it comes down to saving, spending money…

Introduction

Modern financial economics are pegged on the assumption that financial practitioners act both meticulously and with rationale. However as evidenced and earlier stated, this is not always the case. These deviations from the norm are not rampant and inherent but follow a systematic chain of events. With this information in mind it is possible to incorporate these systematic human deviations into the standard model of financial markets (Rutledge 264). In so doing, two commonly overlooked mistakes come to the foreground: Financial practitioners tend to indulge in excessive trading with belief that the next trade will rake in more lucrative returns. This is irrational trading and is propelled by emotion rather than rational thinking. The human trait of being too overconfident or corky in this case is the key driving motivation behind this bias. Some financial practitioners are also in the habit of holding on to losing stocks while at the same selling their winning stocks. This again is instigated by lack of confidence and the need to avoid both failure and regrets coupled with poor judgments. Behavioral finance contributes to asset pricing in two major dimensions. ...
Download paper
Not exactly what you need?

Related papers

Efficient Market Hypothesis
The efficient market theory assumes that there are no transaction costs, money market is not segmented and it is easy to enter the money markets. Efficient market hypothesis is explained in three ways. First, there is weak form efficiency. Weak form efficiency stipulates that all past information that is available in public domain is a reflection of stock prices. The prices are considered unbiased…
Efficient Markets Theory and Behavioral Finance
In this theory, therefore, assumptions are done perpetuating that the information organisation and the behaviour of market participants systematically control individuals’ decisions in investment and the outcomes of the market. According to (Malkiel, 2003) the efficient market theory, has implications of theoretical perspectives to the market trends, while it ignores or under estimate the…
Behavioural Finance Implications on Personal Investment Decisions
This calls for better understanding and insight of the nature of human in the current global outlook, plus advancement of fine skills and the capability to achieve the best from investments. Furthermore, investors need to develop foresight, positive vision, drive and perseverance (BAKER, & NOFSINGER, 2010: p23). Investors vary in all features due to factors such as demographic factors, which…
Why I Want to Study Msc in Finance and Investment and How I Feel I Can Contribute to the Course
I attribute this to the environment I grew in where most people were business people who had invested in different sectors of the economy. I undertook the course of Finance and Investment during my undergraduate programme and I would like to get a deeper understanding of the field. This would be possible through a MSC undertaking in the course. I want to gain the necessary skills and knowledge…
Behavioural Finance
It is very clear that some of the participants in the market do not make rational decisions which translate to mistakes. However, astute market players get the chance to capitalize on such mistakes. For instance, a rational investor can take the decision to buy when there is market crash resulting from speculative behavior (Mussweiller & Schneller, 2003, p. 124). Given a risk-adjusted basis,…
Corporate finance
Market efficiency is a crucial factor in deciding the investment strategies of an investor. If the securities market is efficient, the best estimate and returns will be reflected in the price of the shares and there will be no undervalued securities that would offer higher return than expected. However, opposite could be the case in the weak efficient markets. (WOOD, DASGUPTA & POSHAKWALE, 1995)…
BEHAVIOURAL FINANCE AND MARKET EFFICIENCY
Due to the presence of inefficiency within the global market, the sales and profitability of a company is not only affected but also the country’s ability to build a more reliable capital asset. Therefore, in response to poor market efficiency, the study on behavioural finance has gained importance back in 1990s2. Using knowledge on behavioural finance, the main causes and underlying drivers of…