UNIT I Basics of Behavioural Finance
Behavioural Finance: Nature, Scope, Objectives, Significance and Application. The Psychology of Financial Markets and Investor Behaviour, Behavioural Finance Market Strategies, Prospect Theory and Mental Accounting - Investors Disposition Effect.
UNIT II Building block of Behavioural Finance
Cognitive Psychology and limits to arbitrage. Demand by arbitrageurs; Risk - Noise–trader risk; Professional arbitrage; Destabilizing informed trading - Expected Utility as a basis for decision–making - Theories
UNIT III Rationality
Ellsberg’s paradoxes, Rationality from an economics and evolutionary prospective. Different ways to define rationality: dependence on time horizon, individual or group rationality. Herbert Simon and bounded rationality. Demand by average investors; Belief biases; Limited attention and categorization; Non–traditional preferences; Bubbles and systematic investor sentiment.
UNIT IV Investor Behaviour
External factors and investor behaviour: Fear & Greed in Financial Market, Emotions and financial markets: geomagnetic storm, Statistical methodology for capturing the effects of external influence onto stock market returns
UNIT V Behavioural corporate finance
Empirical data on dividend presence or absence, ex–dividend day behaviour. Timing of good and bad corporate news announcement. Systematic approach of using behavioural factors in corporate decision–making. Neurophysiology of risk–taking. Personality traits and risk attitudes in different domains.
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