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BEHAVIOURAL FINANCE – PRACTICAL
Course Outcomes (Cos):
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Learning outcome (at course level) |
Learning and teaching strategies |
Assessment Strategies |
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Upon successful completion of this course, the student will be able to: CO256 Analyse the role of Herding Behaviour in financial markets CO257 Interpret the relationship between behaviour factors and stock market bubbles CO258 Demonstrate using empirical data the challenges to the efficient market hypothesis and risk preferences of the investors CO259 Examine the consequences of key behavioural biases on investment, asset allocation and cryptocurrency market CO260 Interpret the impact of behavioural biases on financial decision-making |
Approach in teaching: Interactive Lectures, Discussion, Tutorials, Reading assignments, Team teaching
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Class test, Semester end examinations, Quiz, Assignments, paper presentations, case study, final research paper
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Herding Behaviour in Financial Markets: Investigate the phenomenon of herding behaviour among investors. Analyse historical market data to identify periods of heightened herding and study the impact on stock returns. You can explore different factors such as investor demographics, market conditions, or news events that contribute to herding behaviour.
Behavioural Factors in Stock Market Bubbles: Research the role of behavioral factors in the formation and burst of stock market bubbles. Analyse historical data from previous market bubbles (e.g., dot-com bubble, housing bubble) and identify common behavioural patterns and irrational exuberance that contribute to bubble formation.
Impact of Financial News on Investor Behaviour: Examine how financial news influences investor behaviour and decision making. Analyse news sentiment, frequency, and content related to specific stocks or markets, and study the subsequent investor reaction, such as changes in trading volume, volatility, or returns.
Report/Discussion/Presentation/Survey on
Exploring the List of self-control questions: What is the difference between expected utility and prospect theories? Describe the three steps of efficient market hypothesis. How it deals with rational investors? How it deals with irrational investors? Does efficient market hypothesis work if in case of correlated trading strategies? Explain the conditions. How to test the semi-strong form of efficient market hypothesis? What are the key phenomena challenging the efficient market hypothesis? What are the most popular behavioral biases for individual investors?
Report/ Presentation/Survey on the nature of the following behavioral biases:
Cognitive Biases in Investment Decision Making: Study the influence of cognitive biases on investment decisions. Select a specific bias (e.g., anchoring bias, confirmation bias, or loss aversion) and analyse its impact on investment performance. You can conduct surveys, interviews, or behavioral experiments to gather data on decision-making biases.
Prospect Theory and Asset Allocation: Apply prospect theory principles to asset allocation strategies. Analyse how investors' risk preferences and loss aversion influence their portfolio allocation decisions. Compare the performance of traditional portfolio models (e.g., mean-variance optimization) with prospect theory-based models.
Behavioral Finance and Cryptocurrency Markets: Study the influence of behavioral biases in cryptocurrency markets. Analyze market data from different cryptocurrencies and investigate the impact of factors like herding behavior, cognitive biases, and emotional decision making on price volatility and trading volumes.
SUGGESTED TEXT BOOKS:
• Chandra, P. (2017), Behavioural Finance, Tata Mc Graw Hill Education, Chennai (India).
• Ackert, Lucy, Richard Deaves (2010), Behavioural Finance; Psychology, Decision Making and Markets, Cengage Learning.
• Forbes, William (2009), Behavioural Finance, Wiley.
• Kahneman, D. and Tversky, A. (2000). Choices, values and frames. New York : Cambridge Univ. Press.
• Shefrin, H. (2002), Beyond Greed and Fear; Understanding Behavioural Finance and Psychology of investing. New York; Oxford University Press.
SUGGESTED REFERENCE BOOKS:
• Thaler, R. (1993). Advances in Behavioral Finance. Vol. I. New York,Russell Sage Foundation.
• Thaler, R. (2005). Advances in Behavioural Finance. Vol. II. New York; Princeton University Press.
• Shleifer, A. (2000). Inefficient markets; An introduction to Behavioural Finance. Oxford Univ. Press.
• Ackert, Deaves. Behavioral Finance: Psychology, Decision-Making, and Markets. Cengage Learning; 1 edition, 2010.
• Shleifer, Andrei (2000). Inefficient Markets: An Introduction to Behavioral Finance. Oxford, UK: Oxford University Press.
• Hersh Shefrin, (2000) Beyond Greed and Fear, Harvard Business School Press.
e-RESOURCES:
• World EBook Library
• World EBook Library
• https://www.wallstreetmojo.com/behavioral-finance/
• https://www.accaglobal.com/gb/en/student/exam-support-resources/fundamen....
REFERENCE JOURNALS:
• Review of Behavioural Finance, Emerald Publishing
• Journal of Behavioural Finance, Institute of Behavioural Finance, Plano, TX 75093
