Traditional finance literature is based on the assumption of rational and omniscient investors who optimize the risk/return profile of their portfolios. This approach has merits in the development of theoretical foundations like the Capital Asset Pricing Model and the Arbitrage Pricing Theory for a stylized world with efficient markets. However, treating investors as being utility optimizing, omniscient, and unboundedly rational individuals, sets limits to understanding and explaining real-life investors' behaviour. The limitations of traditional finance are well-known in the field of behavioural finance and the extant literature in the latter field has contributed to understanding many facets of both micro level individual investor as well as macro level stock market behaviour that were inexplicable from a traditional finance perspective. behavioural finance is a relatively new discipline that studies how psychology affects finance. This course serves to provide a broad overview of what constitutes behavioural finance and how its findings may be used to better understand and possibly improve both the financial decision-making behaviour of individual investors as well as that of corporate executives and provides first insights in how we may apply this knowledge when developing financial products.
There will be a opening lecture.
Doelstellingen van dit vak
The purpose of this course is to provide an understanding of the psychological underpinnings of the behaviour of individuals and the effect that has on financial markets and the financial decision making processes in corporations.
Courses and workload are very demanding for all IB Master courses.
- Exchange students need to have obtained a Bachelor degree in business.
- Exchange students need to major in finance in their Master.
- Students are expected to understand the basics of CAPM and portfolio choice as well as financial markets and investor behaviour.
Both a textbook and a collection of articles will be used:
- Shefrin, Hersh (2007). Beyond Greed and Fear: Understanding Behavioral Finance and the Psychology of Investing. Oxford University Press.
- A selection of later to be announced scientific articles will be used. This will be posted on ELEUM.