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
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.
| Type | Hours |
|---|---|
| Revision | 27 |
| Seminar | 10 |
| Lecture | 24 |
| Preparation for scheduled sessions | 10 |
| Follow-up work | 49 |
| Completion of assessment task | 30 |
| Total study time | 150 |
Resources & Reading list
Forbes, W. (2009). Behavioural Finance.
Ackert, L. F., Deaves, R. (2009). Behavioral finance: psychology, decision-making, and markets.
Shleifer, A. (2000). Inefficient markets: an introduction to behavioral finance.
Nofsinger, J. R. (2014). The psychology of investing.
Assessment
Formative
In-class activities
Summative
| Method | Percentage contribution |
|---|---|
| Exam (2 hours) | 80% |
| Presentation (20 minutes) | 20% |
Repeat
| Method | Percentage contribution |
|---|---|
| Digital presentation (10 minutes) | 20% |
| Exam (2 hours) | 80% |
Referral
| Method | Percentage 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.