Volume 0 • Issue 1 • PP: 08-22 • 2019
Investor Psychology Perspective: a deep review on Behavioral finance
View PDF Abstract
Determining the fair value of financial assets has been a controversial subject since the 1990s, and whether this value depends only on fundamentally calculated pricing models or if there are other psychological factors that affects it. The field of behavioral finance addressed these issues and provided some asset pricing models that incorporate behavioral aspects of decision-making and explained the different heuristics and biases behind these market reactions that lacked fundamental explanation. Behavioral finance is a relatively new paradigm that emerged to try to fill in the gaps in "Modern Finance". Behavioral finance models did not develop specific strategies to beat the market, however, it has highlighted lots of argumentative ideas that have promising directions of further research and analysis that may be very useful in public policy and welfare analysis, as well as in wealth management. In this paper, the author is presenting some of these behavioral finance theories and how they tackle the psychological aspects in investors’ rational and irrational investment decisions.
Keywords
References
[1] Sharabi, R. (2009). Volatility Expectations in the Market Place: A Behavioral Perspective. Ohio University.
[2] Campbell, J. (2000), ‘Asset pricing at the millennium’, The Journal of Finance, 55, 1515-1567.
[3] Fama, E. (1970), ‘Efficient Capital Markets: A Review of Theory and Empirical Work’, Journal of Finance, 25, 383-417.
[4] Goetzmann, W., and Kumar, A. (2001). "Equity Portfolio Diversification". NBER Working Paper, no. 8686
[5] Polkovnichenko, V. (2003). "Household Portfolio Diversification". Working Paper, University of Minnesota
[6] Shefrin H. 1999c. Beyond Greed and Fear: Understanding Behavioral Finance and the Psychology of Investing. Boston, MA: Harvard Press
[7] Statman, M. (2010)." What is Behavioral finance?" Working Paper, Santa Carla University.
[8] Merton, R. C. (1987). A Simple Model of Capital Market Equilibrium with Incomplete Information. Journal of Finance, 42(3), 483–510.
[9] Simon, H. A. (1957). Models of Man: Social and Rational. New York: Wiley.
[10] Markowitz, H. (1952). Portfolio Selection. Journal of Finance, 7(1), 77–91.
[11] Lopes, L. L. (1987). Between Hope and Fear: The Psychology of Risk. Advances in Experimental Social Psychology, 20, 255–295.
[12] Sharpe, W. F. (1964). Capital Asset Prices: A Theory of Market Equilibrium Under Conditions of Risk. Journal of Finance, 19(3), 425–442.
[13] Miller, M. H., and Modigliani, F. (1961). Dividend Policy, Growth, and the Valuation of Shares. Journal of Business, 34(4), 411–433.
[14] Lintner, J. (1965). The Valuation of Risk Assets and the Selection of Risky Investments in Stock Portfolios and Capital Budgets. Review of Economics and Statistics, 47(1), 13–37.
Cite This Article
Choose your preferred format