Behavioural Finance

Section A : 413 Behavioural Finance

Unit

Course Description

Sessions

Unit I

Introduction: Meaning, nature, scope and history of Behavioural Finance; Comparison between Behavioural Finance and Standard Finance; Are financial markets efficient? Limits to arbitrage-Fundamental Risk, Noise Trader Risk, Behavioural Finance scenario in India.

3

Unit II

Behaviour and Decision Making: Cognitive Bias, Emotional Bias, Concept of bounded rationality. beliefs and heuristics-Preferences: Prospect Theory, Ambiguity aversion, Loss aversion, Framing, Non[1]consequentialism: Disjunction Effect.

3

Unit III

Theories of Behavioural Finance: Asymmetric information, Ego centricity, Human Behavioral Theories. Heuristics: Familiarity, Ambiguity Aversion Diversification, Functional Fixation Status Quo, Endowment Effect Representativeness: Innumeracy, Probability matching and conjunction fallacy, Base Rate Neglect, Availability and Salience, Anchoring.

4

Unit IV

Bias: Interaction amongst biases Outcomes of biases Dealing with biases Overcoming the biases and debiasing Cognitive Biases: Self-Deception, Framing, Overconfidence, Miscalibration, better than average effect, overoptimism Causes: illusion of knowledge, control, understanding, skill, Self[1]attribution, Confirmation, Representativeness, Recency. Emotional Biases: Regret, Hindsight, Denial, Loss aversion, Affinity, Self-control.

4

Unit V

Behavioural aspects of Investing: Behavioural Portfolio theory, Psychographic models, Sound Investment Philosophy.

2

Unit VI

Value Investing: Central tenets of value investing Evidence and prospects of value investing. Neuro finance: Neural processes during financial decision-making Future of Neuro finance Adaptive Market Hypothesis.

3

Unit VII

Anomalies: Fundamental anomalies, Accounting Based Anomalies, Calendar Anomalies, Technical anomalies: Value v/s Growth, size, equity premium myopia.

2

Unit VIII

Market Bubbles: Identification and causes, investor behaviour during bubbles, case study of prominent market bubbles/scams.

3

Section B

At least one case study/problem from each unit. Questions will be case/inferences/application based