Behavioral Finance I

Catalog description

The traditional framework for thinking about financial markets assumes that all market participants are fully rational. The past four decades have seen the emergence of an important new paradigm, behavioral finance, which argues that many financial phenomena are the result of less than fully rational thinking. This course provides a comprehensive discussion of the field. We revisit basic topics in finance from a behavioral finance perspective: topics related to markets (e.g. stock market fluctuations, popular investment strategies, bubbles); topics related to investor behavior (e.g. poor investment decisions by households); and topics related to corporate finance and managerial behavior (e.g. security issuance, mergers and acquisitions). We discuss the lessons of behavioral finance for how investors and managers should behave. A running theme in the course is that knowledge of behavioral finance is essential for anyone who seeks a full understanding of modern financial markets.