Behavioral Finance-An Overview

The investors chief problem, and even

his worst enemy, is likely to be himself.
Benjamin Graham

There are three factors that influence the

market: Fear, Greed, and Greed.
Market
folklore
 Definition of Behavioral Finance

A field of finance that proposes

psychology-based theories to explain
stock market anomalies. Within
behavioral finance, it is assumed that
the information structure and the
characteristics of market participants
 Standard Theory of Finance

Investors Markets
Are rational beings Quickly incorporate
Consider all information all known
and accurately assess information
its meaning
Represent the true
Some individuals/agents
value of all securities
may behave irrationally
or against predictions, May be difficult to
but in the aggregate beat in the long term
they become irrelevant.
 Standard Theory of Finance

Investors Markets
Are not totally In the short
rational term, there are
Often act based anomalies and
on imperfect excesses
information
Behavioral Characteristics

Loss aversion Mental accounting

Media response Overconfidence

Disposition effect Regret

Herding Anchoring

Narrow framing Hindsight bias

Optimism
Recency