scholarly journals A Study on Application of the Behaviourial Finance in Investment Decisions

2020 ◽  
pp. 251-255
Keyword(s):  
Behavioral Finance ◽  
Building Blocks ◽  
Efficient Market Hypothesis ◽  
Investment Strategies ◽  
Efficient Market ◽  
Behavioural Finance ◽  
Limits To Arbitrage ◽  
The People ◽  
New Development ◽  
Full Rationality

Financial markets are influenced by various factors but the most important factors is the reaction as well as perception of the people. Basically there are two discipline of financial market study i.e., Traditional finance and the new development called Behaviourial finance.Traditional finance foundation is truly based on efficient market concept&Behavioral finance argues that some financial phenomena can plausibly be understood using models in which some agents are not fully rational. The field has two building blocks: limits to arbitrage, which argues that it can be difficult for rational traders to undo the dislocations caused byless rational traders; and psychology, which catalogues the kinds of deviations from full rationality we might expect to see. We close by assessing progress in the field and speculating about its future course. In this paper an attempt has been made to highlight the shortcomings of the traditional finance theories as pointed out by behavioural finance supporters and also a discussion on the significance of behavioural finance. While conventional academic finance emphasizes theories such as modern portfolio theory and the efficient market hypothesis, the emerging field of behavioral finance investigates the psychological and sociological issues that impact the decision-making process of individuals, groups, and organizations. This paper will discuss some general principles of behavioral finance including the following: overconfidence, financial cognitive dissonance, the theory of regret, and prospect theory. In conclusion, the paper will provide strategies to assist individuals to resolve these “mental mistakes and errors” by recommending some important investment strategies for those who invest in stocks and mutual funds

scholarly journals IPO Pricing Phenomena: Empirical Evidence Of Behavioral Biases

2011 ◽  
Vol 6 (4) ◽  
Author(s):  
Michael Adams ◽  
Barry Thornton ◽  
George Hall
Keyword(s):  
Initial Public Offering ◽  
Behavioral Finance ◽  
Efficient Market Hypothesis ◽  
Class Action ◽  
Investment Horizon ◽  
Efficient Market ◽  
The Past ◽  
Ipo Pricing ◽  
Public Offering ◽  
Substandard Performance

Does IPO stand for Instant Profit Opportunity or It’s Probably Over-priced?  The conundrum is that both answers are generally correct.  The answer appears to depend on the investor’s investment horizon.  This realization provides an enigma for the Efficient Market Hypothesis (EMH) proponents. It is widely known that initial public offering (IPO) stocks in the past have typically been underpriced, thereby allowing the fortunate purchaser to buy the shares in the primary market and systematically beat the stock market averages. This phenomenon is evidenced by the average one-day returns on IPOs of 15% and presents a puzzle to efficient market advocates. Behavioral finance posits that the same underpriced IPO stocks will under-perform the market and deliver substandard performance during the ensuing one to three years. At a minimum, the “new-issues puzzle” presents a challenge to the EMH and has given rise to many class-action stockholder lawsuits alleging illegal price manipulation.   Why under-pricing systematically happens and why issuing firms/major shareholders choose to leave copious amounts of money on the table is not well explained by traditional financial theory.  Behavioral finance melds together investor psychology and normative financial theory in an attempt to explain this market enigma.

scholarly journals Stock Investment and Excess Returns: A Critical Review in the Light of the Efficient Market Hypothesis

2019 ◽  
Vol 12 (2) ◽  
pp. 97 ◽  
Author(s):  
Qianwei Ying ◽  
Tahir Yousaf ◽  
Qurat ul Ain ◽  
Yasmeen Akhtar ◽  
Muhammad Shahid Rasheed
Keyword(s):  
Capital Markets ◽  
Stock Prices ◽  
Intrinsic Value ◽  
Efficient Market Hypothesis ◽  
Investment Strategies ◽  
Excess Returns ◽  
Efficient Market ◽  
Market Anomalies ◽  
Replication Studies ◽  
Stock Investment

The expansion of investment strategies and capital markets is altering the significance and empirical rationality of the Efficient Market Hypothesis. The vitality of capital markets is essential for efficiency research. The authors explore here the development and contemporary status of the efficient market hypothesis by emphasizing anomaly/excess returns. Investors often fail to get excess returns; however, thus far, market anomalies have been witnessed and stock prices have diverged from their intrinsic value. This paper presents an analysis of anomaly returns in the presence of the theory of the efficient market. Moreover, the market efficiency progression is reviewed and its present status is explored. Finally, the authors provide enough evidence of a data snooping issue, which violates and challenges the existing proof and creates room for replication studies in modern finance.

scholarly journals Efficient Market Hypothesis V/S Behavioural Finance

2014 ◽  
Vol 16 (4) ◽  
pp. 56-60 ◽  
Author(s):  
Ekanshi Gupta ◽  
◽  
Preetibedi Preetibedi ◽  
Poona mlakra
Keyword(s):  
Efficient Market Hypothesis ◽  
Efficient Market ◽  
Behavioural Finance

Behavioral Finance Market Hypotheses

2017 ◽  
Author(s):  
Alex Plastun
Keyword(s):  
Financial Markets ◽  
Empirical Evidence ◽  
Behavioral Finance ◽  
Efficient Market Hypothesis ◽  
Efficient Market ◽  
New Concepts ◽  
Overreaction Hypothesis ◽  
Fractal Market Hypothesis ◽  
Behavioral Perspective

Although the efficient market hypothesis (EMH) is the leading theory describing the behavior of financial markets, researchers have increasingly questioned its efficacy since the 1980s because of its inconsistencies with empirical evidence. This challenge to EMH has resulted in the development of new concepts and theories. These new concepts reject the assumption of investor rationality. The most promising and convincing among these are the adaptive markets hypothesis, overreaction hypothesis, underreaction hypothesis, noisy market hypothesis, functional fixation hypothesis, and fractal market hypothesis. The chapter provides a brief description of these theories and proposes using a behavioral perspective to analyze financial markets.

scholarly journals Momentum Effect all over the World

2020 ◽  
Author(s):  
Zulfiqar Ali Imran ◽  
Woei-Chyuan Wong ◽  
Rusmawati Ismail
Keyword(s):  
Stock Market ◽  
Efficient Market Hypothesis ◽  
Investment Strategies ◽  
Momentum Effect ◽  
Efficient Market ◽  
Momentum Strategies ◽  
The World ◽  
Pertinent Question

This study is intended to reaffirm the existence and profitability of momentum investment strategies in 40 countries around the world during the period 1996–2018. The contradictory findings of previous research on the existence and profitability of momentum strategies have raised a pertinent question on the validity of efficient market hypothesis. We documented the momentum effect in 90% of our sample countries of which 52.5% exhibited positive momentum effect while 37.5% exhibited negative momentum effect. The findings were robust to two distinct sub-period analyses. The clear rejection of efficient market hypotheses is valuable to momentum traders and stock market regulators.  

scholarly journals Do portfolio managers in South Africa consider human behaviour issues when making investment decisions or advising clients?

2009 ◽  
Vol 6 (3) ◽  
pp. 126-136
Author(s):  
JSG Strydom ◽  
JH Van Rooyen
Keyword(s):  
South Africa ◽  
Financial Markets ◽  
Behavioral Finance ◽  
Cognitive Biases ◽  
Investment Decisions ◽  
Efficient Market Hypothesis ◽  
Efficient Market ◽  
Economic Paradigm ◽  
Portfolio Managers ◽  
Available Information

The efficient market hypothesis is based on the assumption that individuals act rationally, processing all available information in their decision-making process. Prices therefore reflect the appropriate risk and return. However, research conducted regarding the ways that investors arrive at decisions when faced with uncertainty, has revealed that this is in fact not always the case. People often make systematic errors, the so-called cognitive biases, which lead them to less rational behavior than the traditional economic paradigm predicts. These cognitive biases have been found to be responsible for various irregular phenomena often observed in financial markets as (turbulence or, volatility, seasonable cycles, "bubbles", etc. Behavioral finance attempts to explain some of the changes in the financial markets that cannot be explained by the efficient market hypothesis. This research reviews some results from the behavioral finance and other related literature. A survey was also done to determine whether the most prominent portfolio managers in South Africa are aware of behavioral finance issues/models and consider the influence of cognitive issues when making investment decisions or giving advice to clients.

Behavioral Finance in Theory and Practice

2014 ◽  
pp. 254-271
Author(s):  
Mustafa Okur ◽  
A. Osman Gurbuz
Keyword(s):  
Financial Markets ◽  
Behavioral Finance ◽  
Psychological Factors ◽  
Rational Expectations ◽  
Main Idea ◽  
Efficient Market Hypothesis ◽  
Theory And Practice ◽  
Efficient Market ◽  
New Approach ◽  
Finance Theory

Behavioral finance is a new approach in finance literature. The main idea is that investors are not as rational as they are assumed to be. Therefore, financial markets could be better understood by using models that capture the effects of both rational and irrational investors. The critics of behavioral finance could be grouped into two main categories: limits of arbitrage and psychological factors. This chapter concentrates on both challenges and possible contributions of behavioral finance theory to the modern finance theory, which is mainly based on rational expectations theory and efficient market hypothesis.

Sign in / Sign up

Export Citation Format

Share Document