Behavioral Finance Course Outline PhD 2012
Content
JBS
Behavioral Finance
January 2012
© Dr. Moonis Shakeel
Jaypee Business School
A Constituent of Jaypee Institute of Information Technology (Deemed to be University) A-10, Sector 62, NOIDA, 201 307, India.
PhD Programme; Trimester III January 9 – March 31, 2012
Course Code: P3EBF05 Course Title: Behavioral Finance Course Credit: 3 Session Duration: 90 Minutes Name of the Faculty: Dr. Moonis Shakeel Email ID: [email protected] 1. Introduction Some decision are simple, day-to-day choices, such as how hard we are going to study for the next test, or what brand of soda we are going to buy, but others significantly impact our financial well being, such as whether we should buy a particular stock , or how we should allocate our money among various investment funds. The rapidly growing field of behavioral finance uses insight from psychology to understand how human behavior influences the decision of individual and professional investors, markets, and managers. While it would be difficult to find anyone who would seriously question the contention that psychology impacts individual finance decisions, there is less agreement on whether market outcomes are also impacted. Looking ahead, we will see that behavioral finance is very useful in helping us understand certain puzzles at the level of the investor. We are all human, which means that our behavior is influenced by psychology. 2. Objectives • The objective of the course is to introduce the students to the concept of behavioural finance and its impact on financial markets and decision making 3. Learning Outcomes 4. At the conclusion of this course, students will be able to: • describe the key psychological concepts that underlie the study of behavioural finance. These concepts roughly fall into two categories: (1) framing effects and (2) heuristics and biases. • apply these concepts to the behaviour of investors, the behaviour of corporate managers, and the character of asset prices.
JBS
Behavioral Finance
January 2012
© Dr. Moonis Shakeel
•
identify and explain how psychological elements influence the manner in which investors construct portfolios, how corporate managers make decisions about capital budgeting and capital structure, and how market prices reflect investor sentiment.
5. Text Book: • Ackert and Deaves, Behavioural Finance, Cengage. 6. Additional Readings and References: 1. Joachim Goldberg, Rüdiger von Nitzsch, Behavioral Finance ,Wiley. 2. Lars Tvede, The Psychology of Finance: Understanding the Behavioural Dynamics of Markets, Revised Edition, Wiley. 3. Andrei Shleifer, Inefficient Markets:An Introduction to Behavioral Finance, Oxford. 4. Hersh Shefrin, Beyond Greed and Fear:Understanding Behavioral Finance and the Psychology of Investing, Oxford. 5. Melvin Lax, Wei Cai and Min Xu, Random Processes in Physics and Finance, Oxford. 7. Evaluation Details S. No. Components 1 Assignments 2 Mid-Term Exam 4 End-Term Exam
Weightage (%) 30 30 40 100 Total
7.1 Individual Assignments (3x10=30%) Each student will be given three assignments, 10 marks each, to submit on or before deadline for evaluation. 7.2Mid-Term Exam (30%) Mid-Term Exam will be based on class discussion, lectures, power points and assigned chapters in the textbook. This will be a ‘Open book’ problem solving questions 7.3 End-Term Exam (40%) End-Term Exam will be at the end of the trimester and will cover the entire course. This will also be a ‘Open book’ test on application based real life questions/ problem(s)/ Case(s). 8. Pedagogy The course will involve a healthy balance of lecture and classroom discussion and case discussions on each module. The students must come to class fully prepared having read the text materials and case studies indicated in the session plan.
JBS
Behavioral Finance
January 2012
© Dr. Moonis Shakeel
9. Teaching Plan:
Sessions
1-4
Topics
Conventional Finance: • Foundation of Finance I: Expected Utility Theory • Foundation of Finance II: Asset Pricing, Market Efficiency, and Agency Relationship • Prospect Theory, Farming, and Mental Accounting • Challenges to Market Efficiency Behavioral Science Foundations: • Heuristics and Biases • Overconfidence • Emotional Foundation Investor Behavior: • Implications of Heuristics and Biases for Financial Decision-Making • Implication of Overconfidence for Financial Decision-Making • Individual Investors and the Force of Emotion Social Forces: • Social Forces: Selfishness or Altruism? • Social Forces at Work: The Collapse of an American Corporation Market Outcomes: • Behavioral Explanations for Anomalies • Do Behavioral Factors Explain Stock Market Puzzles? Corporate Finance: • Rational Manager and Irrational Investors • Behavioral Corporate Finance and Managerial Decision-Making
5-8
9-12
13-14
15-17
18-20
Behavioral Finance
January 2012
© Dr. Moonis Shakeel
Jaypee Business School
A Constituent of Jaypee Institute of Information Technology (Deemed to be University) A-10, Sector 62, NOIDA, 201 307, India.
PhD Programme; Trimester III January 9 – March 31, 2012
Course Code: P3EBF05 Course Title: Behavioral Finance Course Credit: 3 Session Duration: 90 Minutes Name of the Faculty: Dr. Moonis Shakeel Email ID: [email protected] 1. Introduction Some decision are simple, day-to-day choices, such as how hard we are going to study for the next test, or what brand of soda we are going to buy, but others significantly impact our financial well being, such as whether we should buy a particular stock , or how we should allocate our money among various investment funds. The rapidly growing field of behavioral finance uses insight from psychology to understand how human behavior influences the decision of individual and professional investors, markets, and managers. While it would be difficult to find anyone who would seriously question the contention that psychology impacts individual finance decisions, there is less agreement on whether market outcomes are also impacted. Looking ahead, we will see that behavioral finance is very useful in helping us understand certain puzzles at the level of the investor. We are all human, which means that our behavior is influenced by psychology. 2. Objectives • The objective of the course is to introduce the students to the concept of behavioural finance and its impact on financial markets and decision making 3. Learning Outcomes 4. At the conclusion of this course, students will be able to: • describe the key psychological concepts that underlie the study of behavioural finance. These concepts roughly fall into two categories: (1) framing effects and (2) heuristics and biases. • apply these concepts to the behaviour of investors, the behaviour of corporate managers, and the character of asset prices.
JBS
Behavioral Finance
January 2012
© Dr. Moonis Shakeel
•
identify and explain how psychological elements influence the manner in which investors construct portfolios, how corporate managers make decisions about capital budgeting and capital structure, and how market prices reflect investor sentiment.
5. Text Book: • Ackert and Deaves, Behavioural Finance, Cengage. 6. Additional Readings and References: 1. Joachim Goldberg, Rüdiger von Nitzsch, Behavioral Finance ,Wiley. 2. Lars Tvede, The Psychology of Finance: Understanding the Behavioural Dynamics of Markets, Revised Edition, Wiley. 3. Andrei Shleifer, Inefficient Markets:An Introduction to Behavioral Finance, Oxford. 4. Hersh Shefrin, Beyond Greed and Fear:Understanding Behavioral Finance and the Psychology of Investing, Oxford. 5. Melvin Lax, Wei Cai and Min Xu, Random Processes in Physics and Finance, Oxford. 7. Evaluation Details S. No. Components 1 Assignments 2 Mid-Term Exam 4 End-Term Exam
Weightage (%) 30 30 40 100 Total
7.1 Individual Assignments (3x10=30%) Each student will be given three assignments, 10 marks each, to submit on or before deadline for evaluation. 7.2Mid-Term Exam (30%) Mid-Term Exam will be based on class discussion, lectures, power points and assigned chapters in the textbook. This will be a ‘Open book’ problem solving questions 7.3 End-Term Exam (40%) End-Term Exam will be at the end of the trimester and will cover the entire course. This will also be a ‘Open book’ test on application based real life questions/ problem(s)/ Case(s). 8. Pedagogy The course will involve a healthy balance of lecture and classroom discussion and case discussions on each module. The students must come to class fully prepared having read the text materials and case studies indicated in the session plan.
JBS
Behavioral Finance
January 2012
© Dr. Moonis Shakeel
9. Teaching Plan:
Sessions
1-4
Topics
Conventional Finance: • Foundation of Finance I: Expected Utility Theory • Foundation of Finance II: Asset Pricing, Market Efficiency, and Agency Relationship • Prospect Theory, Farming, and Mental Accounting • Challenges to Market Efficiency Behavioral Science Foundations: • Heuristics and Biases • Overconfidence • Emotional Foundation Investor Behavior: • Implications of Heuristics and Biases for Financial Decision-Making • Implication of Overconfidence for Financial Decision-Making • Individual Investors and the Force of Emotion Social Forces: • Social Forces: Selfishness or Altruism? • Social Forces at Work: The Collapse of an American Corporation Market Outcomes: • Behavioral Explanations for Anomalies • Do Behavioral Factors Explain Stock Market Puzzles? Corporate Finance: • Rational Manager and Irrational Investors • Behavioral Corporate Finance and Managerial Decision-Making
5-8
9-12
13-14
15-17
18-20
