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MANG3082 Behavioural Finance

Module Overview

Behavioural finance (BF) is an unorthodox area of finance that assumes financial markets are fundamentally inefficient. Advocates of BF believe that investor behaviour and decision making are driven by aspects of personal and market psychology. This module will involve an introduction to BF followed by a detailed analysis of the main issues.

Aims and Objectives

Module Aims

to introduce you to the key concepts of Behavioural Finance and provide you with the opportunity to develop the ability to critically understand current theoretical and empirical research in the field of Behavioural Finance; to provide you with the ability to critically review a wide range of behavioural phenomena that influence investment decisions, and the consequences of those phenomena for the financial marketplace. This will aid you if you choose to undertake a dissertation in field of Behavioural Finance and potentially carry out future research work in this area.

Learning Outcomes

Knowledge and Understanding

Having successfully completed this module, you will be able to demonstrate knowledge and understanding of:

  • the traditional finance view and how Behavioural Finance challenges this view
  • limits of arbitrage, noise traders, agency theory and their consequences on the Efficient Market Hypothesis
  • the behavioural aspects of investors that can be applied to help investors themselves and fund managers better allocate their capital
Subject Specific Intellectual and Research Skills

Having successfully completed this module you will be able to:

  • demonstrate an understanding of the theoretical concepts of traditional financial theory and how Behavioural Finance challenges this theory
  • demonstrate an appreciation of the importance of the psychology of investors
  • produce reasoned arguments and reach logical conclusions, and support both by reference to relevant theoretical frameworks
Transferable and Generic Skills

Having successfully completed this module you will be able to:

  • demonstrate competence generally in numerical analysis and problem solving
  • communicate ideas orally and/or in a written format

Syllabus

What is ‘traditional’ view in finance, challenges of the traditional view, behavioural finance as an alternative approach ‘Traditional’ finance theory: utility analysis, portfolio theory, asset pricing models, arbitrage, rational stock valuation Efficient market hypothesis: theoretical underpinnings of the EMH, empirical evidence, irrational investors and market efficiency Noise trader risk and arbitrage: risk due to noise trader activities, limited arbitrage and its consequences for the EMH Investor sentiment and closed-end funds: irrational investors and their systematic impact on stock prices, empirical evidence Agency theory and limits of arbitrage: agency theory and fund managers’ behaviour, limited arbitrage and the consequences for stock prices Investor psychology: rational behaviour, deviations from rationality in investor’s preferences and beliefs, prospect theory and cognitive biases A model of investor sentiment: investment decisions driven by representativeness and conservatism, deviations from market efficiency Behavioural corporate finance: managerial decision making and exploitation of market inefficiencies, managers and investors as irrational individuals How is the knowledge of behavioural finance helping us to better deal with money?

Learning and Teaching

Teaching and learning methods

Weekly lectures will provide an overview of the main issues arising in the module. Weekly classes will supplement the lectures which will support student learning by providing opportunities for students to attempt, and gain feedback on, numerical and problem-solving exercises. Students will also have the opportunity for both directed and non-directed independent reading.

TypeHours
Completion of assessment task30
Lecture24
Seminar10
Revision27
Follow-up work49
Preparation for scheduled sessions10
Total study time150

Resources & Reading list

Shleifer, A. (2000). Inefficient markets: an introduction to behavioral finance. 

Forbes, W. (2009). Behavioural Finance. 

Nofsinger, J. R. (2014). The psychology of investing. 

Ackert, L. F., Deaves, R. (2009). Behavioral finance: psychology, decision-making, and markets. 

Assessment

Formative

In-class activities

Summative

MethodPercentage contribution
Exam  (2 hours) 80%
Presentation  (20 minutes) 20%

Repeat

MethodPercentage contribution
Digital presentation  (10 minutes) 20%
Exam  (2 hours) 80%

Referral

MethodPercentage contribution
Exam  (2 hours) 100%

Repeat Information

Repeat type: Internal & External

Linked modules

Pre-requisite: MANG2004

Costs

Costs associated with this module

Students are responsible for meeting the cost of essential textbooks, and of producing such essays, assignments, laboratory reports and dissertations as are required to fulfil the academic requirements for each programme of study.

In addition to this, students registered for this module typically also have to pay for:

Printing and Photocopying Costs

There will be additional costs for printing.

Textbooks

Recommended texts for this module may be available in limited supply in the University Library and students may wish to purchase the core/recommended text as appropriate.

Please also ensure you read the section on additional costs in the University’s Fees, Charges and Expenses Regulations in the University Calendar available at www.calendar.soton.ac.uk.

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