BA4007 Syllabus - Behavioral Finance - 2021 Regulation Anna University

BA4007 Syllabus - Behavioral Finance - 2021 Regulation Anna University

BA4007

BEHAVIORAL FINANCE

 L T P C

3 0 0 3

COURSE OBJECTIVE:
• To identify and understand systematic behavioral factors that influences the investment behavior.

UNIT I

INTRODUCTION: WHY BEHAVIORAL FINANCE

9

The role of security prices in the economy – EMH – Failing EMH – EMH in supply and demand framework – Equilibrium expected return models – Investment decision under uncertainty – Introduction to neoclassical economics and expected utility theory – Return predictability in stock market - Limitations to arbitrage

UNIT II

DECISION AND BEHAVIORAL THEORIES

9

Nash Equilibrium: Keynesian Beauty Context and The Prisoner’s Dilemma - The Monthy Hall Paradox - The St. Petersburg Paradox - The Allais Paradox - The Ellsberg Paradox - Prospects theory – CAPM - behavioral portfolio theory – SP/A theory – brief history on rational thought – pasacl – Fermat to Friedman - savage

UNIT III

DECISION MAKING BIASES

9

Information screening bias - Heuristics and behavioral biases of investors – Bayesian decision making – cognitive biases – forecasting biases – emotion and neuroscience – group behaviour – investing styles and behavioral finance

UNIT IV

ARBITRAGEURS

9

Definition of arbitrageur - Long-short trades - Risk vs. Horizon - Transaction costs and short-selling costs - Fundamental risk - Noise-trader risk - Professional arbitrage - Destabilizing informed trading

UNIT V

MANAGERIAL DECISIONS

9

Supply of securities and firm investment characteristics (market timing, catering) by rational firms - Associated institutions - Relative horizons and incentives - Biased managers

TOTAL :45 PERIODS

COURSE OUTCOMES:
1. Understanding the need of behavioural finance
2. Knowing about various decision and behavioural theories
3. Learn about heuristic and behavioural biases of investors
4. Analyse and understand about arbitragers and managerial decision
5. Thorough understanding about the price discovery in markets\

REFERENCES:
1. Shleifer, Andrei (2000). Inefficient Markets: An Introduction to Behavioral Finance. Oxford, UK: Oxford University Press.
2. Daniel Kahneman, Paul Slovic, and Amos Tversky (eds.). (1982) Judgment under Uncertainty: Heuristics and biases, Oxford; New York: Oxford University Press.

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