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BEHAVIOURAL FINANCE (Theory)
This course will enable the students to explore the field of Behavioural Finance and use it for better financial decision making.
Course Outcomes (Cos):
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Course |
Learning outcome (at course level) |
Learning and teaching strategies |
Assessment Strategies |
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Course Code |
Course Title |
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25MFM325 |
Behavioural Finance (Theory) |
CO307: Explore the concept of Behavioral Finance and examine behaviour and preferences for decision making CO308: Explore the theories of Behaviuoural Finance and assess the impact of Heuristics and representativeness on investment decisions CO309: Analyze cognitive and emotional biases for decision making CO310: Evaluate the principles and applications of Behavioral Portfolio Theory in understanding investor behavior, Analyze the central tenets of value investing and its evidence, explore the neural processes underlying financial decision-making, CO311: Evaluate various anomalies in financial markets and analyze investor behavior during market bubbles CO312: Contribute effectively in course-specific interaction
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Approach in teaching: Interactive Lectures, Group Discussion, Tutorials, Case Study Learning activities for the students: Self-learning assignments, presentations |
Class test, Semester end examinations, Quiz, Assignments, Presentation |
Introduction: Meaning, nature, scope and history of Behavioural Finance, Comparison between Behavioural Finance and Standard Finance, Behavioural Finance scenario in India Behaviour and Decision Making: Cognitive Bias, Emotional Bias, Concept of bounded rationality, beliefs and heuristics-Preferences: Prospect Theory, Ambiguity aversion, Loss aversion, Framing, Non-consequentialism: Disjunction Effect.
Theories of Behavioural Finance: Asymmetric information, Ego centricity, Human Behavioral Theories.
Heuristics: Familiarity, Ambiguity Aversion Diversification, Functional Fixation Status Quo, Endowment Effect
Representativeness: Innumeracy, Probability matching and conjunction fallacy, Base Rate Neglect, Availability and Salience, Anchoring.
Bias: Interaction amongst biases Outcomes of biases, Dealing with biases, Overcoming the biases and debiasing
Cognitive Biases: Self-Deception, Framing, Overconfidence, Miscalibration, better than average effect, overoptimism, Causes: illusion of knowledge, control, understanding, skill, Self-attribution, Confirmation, Representativeness, Recency.
Emotional Biases: Regret, hindsight, Denial, Loss aversion, Affinity, Self-control.
Behavioural aspects of Investing: Behavioural Portfolio theory, Psychographic models, Sound Investment Philosophy
Value Investing: Central tenets of value investing Evidence and prospects of value investing. Neuro finance: Neural processes during financial decision-making Future of Neuro finance Adaptive Market Hypothesis
Anomalies: Fundamental anomalies, Accounting Based Anomalies, Calendar Anomalies, Technical anomalies: Value v/s Growth, size, equity premium myopia.
Market Bubbles: Identification and causes, investor behaviour during bubbles, case study of prominent market bubbles/scams.
*Case studies related to entire topics are to be taught.
• Prasanna Chandra, Behavioural Finance, McGraw Hill, 2020, 2nd edition.
• Sujata Kapoor, Jaya Mamta Prasad, Sage, 2019. 5th edition.
Suggested Readings:
• M. M. Sulphey, Behavioural Finance, PHI, 2014, 1st edition.
• Parag Parikh, Value Investing and Behavioural Finance, McGraw Hill, 2009. 2nd edition.
• James Montier, Behavioural Finance: Insights into Irrational Minds and Markets, Wiley Finance,2008.
• Lucy Ackert and Richard Deaves, Understanding Behavioral Finance, Cengage Learning, India Edition2012.
E-resources:
• Asian Journal of Management Cases, http:// sagepub.com
• South Asian Journal of Business and Management Cases, http:// sagepub.com
Journals:
• Journal of Behavioral Finance, Taylor & Francis.
• Journal of Behavioral and Experimental Finance, Elsevier.
• Review of Behavioral Finance, Emerald Publishing
• Review of Behavioral Finance, Wiley Online Library.
