Behavioural Finance (Theory)

Paper Code: 
24DFSG815
Credits: 
4
Contact Hours: 
60.00
Max. Marks: 
100.00
Objective: 

This course will enable students to understand the principles of behavioral finance, analyze heuristics and biases, explore prospect and regret theories, assess behavioral biases' impact on investment decisions, and evaluate personality traits' influence on risk attitudes

Course Outcomes: 

Course

Learning outcome

(at course level)

Learning and teaching strategies

Assessment Strategies

Course Code

Course

Title

 

24DFSG 815

Behavioural Finance

(Theory)

 

CO307: Differentiate between behavioural finance and rational finance

CO308: Critically evaluate Prospect theory and regret theory

CO309: Examine heuristics and biases in investment decision making

CO310: Explain the nature and forecast the consequences of key behavioural biases of investors

CO311: Interpret the relationship between personality traits and risk attitude of the investors

CO312: Contribute effectively in course-specific interaction

 

Approach in teaching: Interactive Lectures, Discussion, Tutorials, Power point presentation.    

 Learning activities for the students:                              Self learning assignments,  Seminar presentation.

CA test, Semester end examinations, Quiz, Assignments, Presentation.

 

12.00
Unit I: 
Investment and Introduction to Behavioural Finance

• Investment: Meaning of Investment, Avenues of Investment, Factors affecting Investment
• Introduction to Behavioural Finance: Meaning, Scope, Objective, Significance, Rationality of Studying Behavioural Finance.
• Foundation of Rational Finance: Expected utility theory, Modern portfolio theory, Capital asset pricing model (CAPM); Efficient markets hypothesis; Agency theory
• Comparison of Behavioural Finance with Rational Finance

12.00
Unit II: 
Heuristics and Biases

• Heuristics and Biases: Concept, Working of human mind-the two systems; Familiarity and related heuristics; Representativeness and related biases; Anchoring; Irrationality and adaptation; Hyperbolic discounting

12.00
Unit III: 
Prospect Theory and Regret Theory

• Prospect Theory: Model, Applications, Limitations and Extension and Relevance of Prospect theory in the area of Finance
• Regret Theory: Fear of regret in investment decisions, Anticipatory Regret, Minimizing fear of Regret

12.00
Unit IV: 
Behaviour Biases and Their Impact on Investment Decisions

• Overconfidence, Representativeness, Anchoring and adjustment, cognitive dissonance, availability biases, self-attrition, Herd mentality, illusion of control, conversation, ambiguity aversion, endowment, self-control, optimism, confirmation, hindsight biases, Recency Bias, Framing Bias Status quo

12.00
Unit V: 
Personality Traits and Risk Attitude

• Systematic Approach of using Behavioural Factors in Corporate Decision Making
• Neurophysiology of Risk Taking
• Personality Trails and Risk Attitudes in Different Domains (Models)

Essential Readings: 

• Chandra, P. (2017), Behavioural Finance, Tata Mc Graw Hill Education, Chennai (India).
• Singh Ranjit (2019), Behavioural Finance, PHI Learning Pvt Ltd, New Delhi
• Kapoor, Sujata.Prosad,Jaya Mamta.(2019) Behavioural Finance, SAGE Publications India Pvt Ltd, New Delhi; First Edition
• Parag Parakh, (2017) Value Investment and Behavioural Finance,McGraw Hill Education; First Edition McGraw Hill Education (India) Private LimitedNoida – 201 301
• 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.

References: 

Suggested Readings:
• 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-Contents:
• 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

Academic Year: 
2024-2025
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