Behavioural Finance Research Papers

Behavioural Finance Research Papers-52
Evaluate the relevance of behavioural finance theory to the build up to the bubble in 2000 and the subsequent market crash.In this essay I will be talking about behavioural finance and its increased popularity in recent academic literature. You have been offered the following two choices– Choice A: ,000 for certain; Choice B: ,000 with a 50% chance of occurring,

If all investors were rational then every investor would choose option A and they would choose it for the correct reasons.

However, as I have already mentioned, not all investors are rational. The efficient market theory is the idea that the market will ...

This is the main reason for some investors choosing option B. One reason for the irrational behaviour of some investors could be due to their own personal risk attitude.

As observed by Shleifer (2000) ‘At the most general level, behavioural finance is the study of human fallibility in competitive markets.’ Behavioural finance incorporates elements of cognitive psychology into finance in an effort to better understand how individuals and entire markets respond to different circumstances.

Behavioural finance is based on the principle that all investors are not rational.

with a 50% chance of occurring.

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Choice theory is based on the assumption that all behavior ...

his lifetime focusing on the development of his theories, specifically his Choice Theory. In this section I will attempt to explain why most investors would choose option A, as set out in the above question.

Taking this choice will guarantee the investor a return of$10000.

This is consistent with much of the traditional market theory.

I will now discuss why some investors choose option B.

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If all investors were rational then every investor would choose option A and they would choose it for the correct reasons.

However, as I have already mentioned, not all investors are rational. The efficient market theory is the idea that the market will ...

This is the main reason for some investors choosing option B. One reason for the irrational behaviour of some investors could be due to their own personal risk attitude.

As observed by Shleifer (2000) ‘At the most general level, behavioural finance is the study of human fallibility in competitive markets.’ Behavioural finance incorporates elements of cognitive psychology into finance in an effort to better understand how individuals and entire markets respond to different circumstances.

Behavioural finance is based on the principle that all investors are not rational.

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If all investors were rational then every investor would choose option A and they would choose it for the correct reasons.However, as I have already mentioned, not all investors are rational. The efficient market theory is the idea that the market will ...This is the main reason for some investors choosing option B. One reason for the irrational behaviour of some investors could be due to their own personal risk attitude.As observed by Shleifer (2000) ‘At the most general level, behavioural finance is the study of human fallibility in competitive markets.’ Behavioural finance incorporates elements of cognitive psychology into finance in an effort to better understand how individuals and entire markets respond to different circumstances.Behavioural finance is based on the principle that all investors are not rational.Other reasons for the irrational behaviour of the investor are that of over confidence, regret, misinformed, etc.All these reasons will alter the mental state of the investor causing him or her to make investment decisions that are not inline with traditional theory and that could prove to be the incorrect decision.First I will give a brief description of what behavioural finance is.Basically behavioural finance is the study and theory that looks into why investors sometimes choose to ignore more traditional investment theory, such as the Efficient Market Hypothesis (EMH), and invest into projects that do not look economically sound or do not offer the most attractive returns.The investors go for the more risky option because of the possibility of more money.This leads to another reason for irrationality; greed.

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