Behavioral Finance And Its Effects On The Economy

Behavioral Finance And Its Effects On The Economy
Introduction
Throughout the history of finance mankind has devised various ways to predict future costs, price
changes, changes in supply and demand, and changes to bond and stock prices. We've created
sophisticated models and formulas to help us make financial decisions. Although, we can't always
prepare for the inevitable depression, inflation, stock bubble bursts, long or short term shocks to the
economy, and changes in taste, we can try our best to protect ourselves financially from our own
irrational behavior and decisions when it comes to finance. With our sophisticated technology
shouldn't everyone generally come to the same conclusion when it comes to changes in the stock or
bond market? What causes people to act differently to ... Show more content on Helpwriting.net ...
It also discusses that how there is enough data to prove that being rational at all times with accurate
evidence isn't realistic. You can still make a rational decision, but suffer from a loss. You can make
an irrational decision and receive a profit. We can't predict the future.
Conventional Finance Many finance specialist use conventional finance to assist them with
determining and analyzing stock performance. According to Albert Phung's article on Investopedia
titled "Behavioral Finance Background" many models have been created from conventional finance
such as the Capital Asset Pricing Model and the Efficient Market Hypothesis. This section describes
why behavioral finance should have a more active role in finance. This article states "academics in
both finance and economics started to find anomalies and behaviors that couldn 't be explained by
theories available at the time. While these theories could explain certain 'idealized' events, the real
world proved to be a very messy place in which market participants often behaved very
unpredictably" (Phung, 2014). Conventional and behavioral finance is compared to one another
throughout this article. Phung states that behavioral finance is designed to explain our actions, while
conventional finance is designed to explain the actions of the "wealth maximizers", otherwise
known as the
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The Consequences Of Herding Behavior Of Financial Traders
Abstract:
This report sets out to analyze the causes and the consequences of herding behavior of financial
traders, emphasizing the impact on financial markets' efficiency and stability. Moreover, it
contributes to formalize the role of policy makers, how they react to herding behavior and what
measures they can take to curtail it. This paper is divided into three section: Section 1 introduces
herding behavior; Section 2 analyzes origin and consequences of herding and its repercussion on
Efficient Market Hypothesis theory; Section 3 focuses on the role of policy makers and what they
can do to curtail herding.
Section 1
Herding behavior, which can be addressed of a part of uninformed trading, is defined as instances in
which individual ... Show more content on Helpwriting.net ...
Therefore, as presented by West (1988), it is necessary to identify a behavioral model which can
highlight the importance and the impact of psychological and irrational behaviors that can explain
the latest financial crisis and asset bubbles. The greatest support of what can be defined as
Behavioral Finance comes from Shiller (1984), who believes that financial behaviors are influenced
by social movements. To explain return patterns that are anomalous from the classical viewpoint of
EMH, it is necessary to introduce either market imperfections or failures of human rationality
(Hirshleifer et.al, 2003). Herding is one of many psychological factors and biases that influences
markets' stability and can be identified as the cause of many stock markets bubbles and crashes.
Moreover herding leads to unhedgeable systemic risk and causes markets' failure to reflect all
relevant information.
Section 2
Herd behavior occurs when investors, firms or analysts take the same action and/or base their
decisions according to others' behaviors (Spyrou, 2013) and follow the crowd (i.e. switching from
buying to selling and reverse). It is present in a market when individuals imitate better informed
investors' trading strategies rather than acting upon their own beliefs and private information.
Moreover, herding must be distinguished from what is known as "spurious herding". Spurious
traders, when facing the same problems and set

Finance; The Efficient-Market Hypothesis
Introduction
Efficient–market hypothesis
In finance, the joint hypothesis trouble, or the efficient–market hypothesis, states that financial
markets are "informational competent ". Besides this, one cannot constantly achieve returns beyond
average market income on a risk–adjusted basis, with the information obtainable at the moment the
investment is complete.
There are three main hypothesis versions: "strong", "semi–strong", and "weak". The EMH weak
form claims that rates on traded assets (e.g., bonds, stocks, or property) already reveal all past
openly available information. The EMH semi–strong form claims both that costs reflect all publicly
accessible information and rates instantly vary to reflect latest public information. The EMH strong
form additionally claims that rates instantly reflect even insider or "hidden" information. Critics
blamed the faith in rational markets for greatly of the late–2000s economic crisis. In reply, the
hypothesis proponents have affirmed that market efficiency does not imply having no uncertainty
concerning the future, that market–efficiency is an overview of the world which might not always
hold factual, and that the market is basically efficient for investment reasons for most people.
Historical background
In history, there was an extremely close connection between EMH and the arbitrary walk hypothesis
and subsequently the Martingale form. The stock market prices random character was first modeled
by, a French broker, during 1863 and

Case Study : The Universal Healthcare Services
As financial manager, my role is a complex one covering many different areas of my clients
finances. My role requires me to have a full understanding of the finances and how my company is
ran. I am responsible for managing the budget and allocating funds amongst the different
departments in relevance to importance, in order to keep the company running successfully.
Choosing to invest in a company is a huge decision , requiring a rigorous amount of research. This
research is done in order to determine whether the companies are a good fit for each other. The
amount of research conducted can make the difference between my investor increasing their profit
and losing money. The company I chose to invest in is the Universal Healthcare Services. UHS inc
operates many different types of businesses including, acute care hospitals, behavioral health
centers, ambulance services, surgical hospitals and oncology centers (www.uhsinc.com). It is
important to investors that the company is within the top leadership of their market. United health
services is well known and respected within their market, making them market leaders. Market
leadership means that the company will have more pricing power and a bigger presence within the
market. Market leadership also means that the company will have a large fan base and brand
recognition. Universal health Services is one of largest Hospital management facilities in the world,
they have build an extensive record and impressive

Theory Of Behavioral Finance : An Investor Sentiment Index...
Introduction
Large price fluctuations could be explained not only by the new information on future dividends as
efficient market model says, but also by factors such as the investor sentiment. Baker & Wurgler
(2007) construct an investor sentiment index and quantify its impact on stock prices. Despite their
important contribution to the theory of behavioral finance, their conclusions are subject to debate.
The main objective of this article is to summarize, evaluate, and offer a critical view on the paper of
Baker & Wurgler (2007). The first section presents a review of article, the second discusses our
main criticism on the econometric methodology, the third analyses predictive power of investor
sentiment, and finally the conclusions.
1. The main contribution: a new approach
Early literature explained market deviations from the principles of the efficient markets theory
referring to concepts like volatility. Robert Shiller (1981) stated that standard deviations of
dividends against its long–term growth path, as a measure of surprises about future dividends, are
not sufficient to explain the volatility in stock prices.
The interaction of agents explains the market fluctuations. To support this Baker & Wurgler (2007)
mention the work of DeLong, Shleifer, Summers, & Waldmann (1990) noting that investors may be
rational (not impacted by sentiment) and irrational (prone to sentiment). Assuming this, Baker &
Wurgler (2007) propose a "top–down" approach, that takes investor

Psychological Theories Of Behavioral Finance
Behavioural Finance
Introduction
Behavioural finance is a relatively new area of evolving research in finance. Behavioural finance
seek to combine behavioural and cognitive psychological theory with conventional economics and
finance to get a better understanding for why individual investors make irrational financial
decisions.
According to Sewell (2007), "Behavioural finance is the study of the influence of psychology on the
behaviour of financial practitioners and the subsequent effect on markets." The science focuses on
the effects of individual investors making decisions based on "hunches or emotions."
Ritter (2003, p.429), describes behavioural finance is based on psychology which suggests that
human decision processes are subject to several cognitive illusions. These illusions are divided into
two groups as illusions caused by heuristic decision process and illusions rooted from the adoption
of mental frames grouped in the prospect theory (Waweru et al., 2008, p.27)
People may make predictable, non–optimal choices when faced with difficult and uncertain
decisions because of heuristic simplification. Behavioral biases, abstractly, are defined in the same
way as systematic errors are, in judgment (Chen et al, 2007).
Behavioral finance theories, which are based on the psychology, attempt to understand how the
psychological variables (heuristics, prospect, and herding) and perceived risk behaviour (Risk
Perception, Risk attitude and Risk Propensity) influence individual

‘Home Bias’ Phenomenon Challenge the View That Investors...
IA183
Assignment Writing Skills for AFM Studies
USC2012
To what extent does the 'home bias' phenomenon challenge the view that investors are rational?
Student: Zhuang, Yuanxun
Tutor: Alexander Bedborough
Date: 16th November 2012
Word Count: 726
This essay will explain what rationality of investors and home bias are and then discuss to what
extent the 'home bias' phenomenon challenges the view that investors are rational.
In neoclassical economics, investors are supposed to be rational, which includes 3
points(assumption)?, 1) "people have rational preferences across possible outcomes or states of
nature"; 2) "people maximize utility and firms maximize profits"; and 3) "people make independent
decisions based on all ... Show more content on Helpwriting.net ...
As a result, investors assess the risk of different investments not only basing on historical standard
deviation; investors tend to impute additional "risk" to foreign asserts because they have less or
lagging information about foreign economic environment and markets. (French & Poterba,
1991) Information asymmetry can cause another problem pointed out by French & Poterba
(1991)is that return expectations of investors in different countries vary systematically; it is hard for
investors to learn that expected returns in domestic markets are not systematically higher than those
abroad because estimating expected returns in equity markets is statistical uncertain. Apart from
information asymmetry, tax burdens also should be taken into consideration. Tax burdens on foreign
equity interest are higher than domestic, leading investors toward holding domestic equity (French
& Poterba, 1991). Therefore, it is hard to say investors are irrational solely because of the
preference of investing in domestic equities.
Essay plan
Question:
To what extent does the 'home bias' phenomenon challenge the view that investors are rational?
Thesis statement

This essay will explain what 'ration of investors' and 'home bias' are and then discuss to what extent
the 'home bias' phenomenon challenges the view that investors are rational.
What is investor ration?
Definition from Behavioral

Finance Faith Interation
Faith Integration : Final Project Managerial Finance July 1, 2012 ABSTRACT This essay will
provide a scriptural key to understanding the topics of finance in a Christian worldview perspective.
The illustrations will be reflected through the events found in God's word, providing a greater
understanding into the relevance of the Bible in today's economic world. It will show the importance
of the integration of faith, as God has provided his wisdom for today in the illustrations of the Holy
Word. Refer to II Timothy 3: 16 – 17; "All scripture is God–breathed and is useful for teaching,
rebuking, correcting and training in righteousness, so that the servant of God may be thoroughly
equipped ... Show more content on Helpwriting.net ...
15). In 1Peter 5:2–4 we find these words: "Be shepherds of God's flock that is under your care,
watching over them–not because you must, but because you are willing, as God wants you to be; not
pursuing dishonest gain, but eager to serve; not lording it over those entrusted to you, but being
examples to the flock. And when the Chief Shepherd appears, you will receive the crown of glory
that will never fade away"(NIV, 2005, p. ). Leverage Financial leverage is a company's ability to pay
its debt. It refers to the use of debt with the intention of increasing the potential return of an
investment. This debt can increase returns on shareholder in good times and reduce them in bad
times (Brealey, et al., 2012, p. 92). A Christian practicing in a financial advisor capacity is morally
obligated to warn companies or consumers against becoming indebted if they are at a high risk of
default. According to Liang (2007), biblical teachings provide many insights into the excessive use
of debt in financial transactions. As confirmation, in Luke 14:28–30, you find these words:
"Suppose one of you wants to build a tower. Won't you first sit down and estimate the cost to see if
you have enough money to complete it? For if you lay the foundation and are not able to finish it,
everyone who sees it will ridicule you, saying, 'This person

Assessment And Problem Formulation Of Fice Of Student Life...
Assessment and Problem Formulation
Our practice context is the counseling and consultation service of the Office of Student Life at the
Ohio State University. We provide a variety of counseling to students such as individual, group,
psychiatry, nutritional counseling, couple's counseling, etc. We provide workshops, crisis debriefing,
and community referral. The counseling and consultation service wants to help students with stress
management, anxiety, depression, relationship problems, transitions in life, identity exploration,
substance use, eating concerns, etc. Students can make an appointment. We also have an emergency
suicide prevention hotline if a student needs immediate assistance. Our staff of counselors has
noticed an increase ... Show more content on Helpwriting.net ...
The counseling office wants to address this problem for all students at the university by providing
financial education, thereby improving financial behaviors and reducing stress associated with
finances. Our question using the COPES framework is as follows: For undergraduate college
students who have to pay for their college education, what is the best intervention/program to help
them manage and/or reduce their amount of student debt?
Intervention Design
In an effort to find the best evidence–based practice (EBP), a search of the literature through
EBSCO host was conducted using terms such as "student loan debt," "student debt," "college
student financial knowledge," "college student credit cards," and "college student theory of planned
behavior" among others. This literature search led to findings regarding students and financial stress,
which allowed us to also address the psychological impact that financial issues can cause.
In addition, a search for a meta–analysis of college student's financial knowledge was conducted. A
search of Cochrane and Campbell yielded almost nothing when using student specific search terms
for debt and financial education. To address the lack of findings, the scope was widened to simply
financial education and knowledge, which resulted in finding a meta–analysis that included students
among other portions of the population when considering financial knowledge

Why Do Firms Choose Their Capital Structure?
1. Introduction
In order to grow, an enterprise needs investments. So they need to start wondering about which
securities to acquire and how to finance those investments: with equity, debt or a combination of
both (Myers, 2001).
The study of capital structure tries to clarify this variety of securities and financing opportunities. In
accounting terms, this decision is situated on the right–hand side of the balance sheet (Myers, 2001).
In his Capital Structure Puzzle article, Myers (1984) poses the question "How do firms choose their
capital structure?". But even today, there is no right solution to this question. In the literature, there
are three central theoretical models: the tradeoff model, the pecking–order hypothesis, and the
agency ... Show more content on Helpwriting.net ...
There is no obligation of an effective repayment to the shareholders and in return, the firm pays out
a dividend to cover for the incurred risk. The amount of the dividend depends on the profitability of
the firm. If the firm is not capable of paying out a dividend to its shareholders, this does not
necessarily lead to bankruptcy. The other option firms have, is to use debt. Creditors invest money in
the company, and the company has the obligation to repay an effective payment, with an agreed
interest rate and maturity date (Proença, et al., 2014).
2.1. Theories of capital structure
The base for the modern capital structure theory comes from Modigliani and Miller (1958). They
stated that it is irrelevant for a firm to choose between equity and debt in perfect and frictionless
markets (Modigliani & Miller, 1958). In those markets there are no taxes, perfect information
disclosure of information and no transaction costs connected with the raise of money or going
bankrupt (Chen, 2004).
2.1.1. Tradeoff theory
Five years after their pioneering research, Modigliani and Miller relaxed the perfect market
assumptions and added corporate tax decision to their models. Consequently, they found that an
increase in debt levels will raise the value of the firm, because firms who finance their activities
with long term debt experience a debt tax shield (Modigliani & Miller, 1963). Modigliani and Miller
(1963) do not show any evidence for bankruptcy

The Emh, the Financial Crisis and the Behavioral Finance
The EMH, the Financial Crisis and the Behavioral Finance 1. Introduction The Efficient Market
Hypothesis (EMH) that was first proposed by Fama (1965, 1970) is the cornerstone of the modern
financial economic theory. The EMH argues that the market is efficient and asset price reflects all
the relevant information concerned about its return. The genius insight provided by the EMH has
changed the way we look at the financial crisis thoroughly. However, the confidence in the EMH is
eroded by the recent financial crisis. People can not help to ask: if the market is efficient and the
price of assets is always correct as suggested by the EMH, why there exists such a great bubble in
the financial market during the recent financial crisis? ... Show more content on Helpwriting.net ...
This financial crisis has eroded the confidence in the EMH. The validity of the EMH and the
existence of the efficient market are questioned broadly. If asset prices are always correct and reflect
all the relevant information concerning about its return just as the EMH has suggested, why there
exists such a great bubble in the financial market during the recent financial crisis? If the market is
efficient, why the market fails to predict the collapse of Lehman Brothers, Bear Stern and other
large financial institutions? Overall, the EMH fails to answer such questions. Moreover, the EMH
also performs poor in explaining other financial crisis. One example is the Tulipmania that occurred
in the 17th century. The prices of the tulip bulbs reached extremely high level which seriously
deviates from its fundamental value that was suggested by the EMH. This apparent bubble is
contradicted with the prediction of the EMH. In fact, the explaining power of the EMH becomes
pale when confronting financial crisis. The EMH does not assume that investors are rational, but the
EMH does assume that the market is efficient. But the reality may not be that simple. Investors may
exhibit a lot of irrational behaviors in the real life, such as overconfident in their ability, following
others readily, making wrong decisions when

Behavioral Finance By Daniel Kahneman And Amol Tversky
1.8. BEHAVIORAL FINANCE
The whole concept of Behavioural Finance was introduced by Daniel Kahneman and Amol Tversky
in late 1960s. They are called as the father of Behavioural Finance. Their observation began to kick
off a whole range of discoveries, with ramifications that investors cannot afford to ignore. Later,
Tversky and Kahneman began to uncover previously searched series of behavioural bias that causes
investors to act irrationally. In 2002, Daniel Kahneman received the Noble Memorial Prize for his
contribution to the study of rationality in economics. Understanding Behavioural Finance and how it
affects the markets is the key to a successful investment strategy.
Behavioral Finance is the new emerging science that explains the irrational behaviour of investors.
Behavioral Finance unwind the usual assumption of traditional finance by incorporating systematic,
observable and human departures from rationality into models of financial markets and behaviour. It
helps us to understand the actual the behaviour of investors versus theories of investors' behaviour.
... Show more content on Helpwriting.net ...
Behavioral Finance Micro (BFMI) – It deals with the behaviour or biases of individual investors. It
distinguishes them from rational investors envisaged in classical economic theory.
1.8.2. Behavioral Finance Macro (BFMA) – It detects and describes the deviation in efficient market
hypothesis that was explained by behavioral

Disposition Effect Essay
Abstract
Many stock market anomalies could not be explained by Efficient Market Hypothersis (EMH). The
psychological biases, such as disposition effect, might help in explaining some of the behavioural
anomalies. Many researchers found that the presence of abundance of disposition–prone investors
could affect the market prices. However the underlying causes of disposition effect is still unclear.
Introduction Disposition effect is an anomaly that relates to the investors's propensity for selling
shares that have increased in value and holding shares that have decreased in value (Financial Times
Lexicon, 2016). The S–shaped prospect theory value function is expressed in terms of gains or
losses where the risk aversion in the domain of ... Show more content on Helpwriting.net ...
The investors might have different trading strategies for small stocks and large stocks. The investor
psychology have led to heterogeneity in investors' beliefs might exhibit behavioral biases, which
could result in irrational trading decision–making.
The Underlying Causes of the Disposition Effect and the Implications of Disposition Effect in
Financial Decision Making Most of the past research has linked the disposition effect to prospect
theory. Barberis and Xiong (2009) mentioned that prospect theory is a potential ingredient in
providing a pure preference–based explanation for this effect. Under prospect theory, people are
strongly avoiding losses in order to obtain gains due to loss aversion. Investors are reluctant to
realise losses because they seem to feel the pain of loss more strongly than gains (Kahneman &
Tversky, 1979). Therefore, people hold the losers because it is believed that they are more
comfortable with 'paper loss' rather than 'realised loss' (Barberis & Xiong, 2009). However, Kaustia
(2010) argued prospect theory value function is unrealistic to explain disposition effect as people do
not sell the stock following small gains in reality. He found that the people are more likely to hold
the stock when the gains are 70% or more, and the propensity to sell soared when the capital gain is
zero. Despite of that, prospect theory would be a potential explanation for the disposition effect (Li
& Yang, 2013). Some researchers have

Study Stock Market Trends : Ron Insana. Investments Don 't...
How to study Stock market trends – Ron Insana Investments don't always work as planned on Wall
Street. However, financial markets send signals regarding the future of the economy. Markets can
move in advance of information available to the general public. In a broad view, markets seemingly
anticipate political events. In other times, the markets will anticipate economic events long before
the investing public understands what's emerging in the general economy. The market is also
effective at discounting a transformational event. When the market excessively anticipates all future
revenues and all the future profits that would accrue to the phenomenon, a bubble or mania
develops. The repetitive nature of the phenomenon, or investment fad, ... Show more content on
Helpwriting.net ...
The stock and the fundamental reality of the company can become divorced. Eventually, the stock
price will reconnect with economic reality, given the way the markets have priced future profits.
People should pay attention to the indicators that suggest the bubble trend is maturing. For example,
when the Federal Reserve is raising interest rates, investors should not be in equities. Investors need
to recognize the historical significance of a shift in the fundamental economic environment, as
bubbles will continue to occur. The question is what will be the impact on the subsequent asset class
that experiences bubble mania.
Behavioral Finance and the psychology of investing – Greg La Blanc How can a bubble ever occur?
For markets to be efficient, the only element that has to be true is that prices consistently reflect the
information available at that time. However, bubbles are now developing in faster intervals and in
different sectors of the market. Experience flattens out the makings of a bubble and experience also
benefits investors by means of avoiding repeated errors in a particular investment.
Game theory applies to industrial organizations, labor markets and pricing. Game theory rarely
applies to finance. The Nash equilibrium is a term used in game theory to describe equilibrium
where each player 's strategy is optimal given the strategies of all other players. A Nash Equilibrium
exists when

Random Walk Theory And Behavioral Finance Theory
CHAPTER TWO: LITERATURE REVIEW
2.1 Introduction This chapter will address theories relevant to the behavior of financial markets and
specifically stock prices movement on release of new information into the market, followed by the
determinants of stock price, international and local empirical evidence and finally a summary of the
chapter.
2.2 Theoretical Review
This section will review the theories that will guide the study and their relevance to the study. The
theories to be reviewed include; Efficient Market Hypothesis (EMH), Random Walk Theory and
Behavioral Finance Theory.
2.2.1 Efficient Market Hypothesis (EMH)
The EMH is a popular investment theory in Finance developed by Fama (1965). According to the
EMH, an efficient capital market ... Show more content on Helpwriting.net ...
Different scholars have given different definitions for behavioral finance. According to Shefrin
(2001), behavioral finance is the study of how psychology affects financial decision making
processes and financial markets. Sewell (2007) defined it as the study of the influence of psychology
on the behavior of financial practitioners and the subsequent effect on markets. It is of interest
because it helps explain why and how markets might be inefficient. Behavioral finance is an attempt
to explain and increase understanding of the reasoning patterns of investors, including the emotional
processes involved and the degree to which they influence the decision–making process (Nyamolo,

In the modern finance theory , behavioral finance is a new...
In the modern finance theory , behavioral finance is a new paradigm , which seeks to appreciate and
expect systematic financial market influence of psychological decision making ( Olsen R A, 1998).
In the recent studies irrationality in the decision making was revealed , based on certain cognitive
limitations. The present chapter is divided into two aspects
According to traditional models in finance and economics, human beings are rational while taking
their decision. However the recent studies explain that decision making is based on certain cognitive
limitations. As the information's are overloaded, we will be applying certain short cuts or heuristics
in order to take a decision. The most important heuristics in the representativeness ... Show more
content on Helpwriting.net ...
Essentially, behavioral finance attempts to explain the what, why, and how of finance and
investment, from a human perspective" (See figure 2). (Shefrin, 2000) however, mentioned the
difference between cognitive and affective (emotional) factors: "cognitive aspects concern the way
people organize their information, while the emotional aspects deal with the way people feel as they
register information" . Figure 2 The Underpinning of Behavioral Finance
Source: (Victor Riccardi & Helen K Simon, 2000)
PSYCHOGRAPHIC MODELS
Models are designed to classify people according to certain characteristics, tendencies or behavior..
Psychographic classifications are particularly relevant with regards to individual strategy and risk
tolerance. The useful models of investors psychographic were Barnewall (1987) and Bailard, Biehl
and Kaiser (1986).
Barnewall Two way model (Barnewall, 1987)
This is one of the most previous and most prevalent investor model based on the work of Marilyn
MacGruder. Barnewall distinguished the investors into two types : passive investors and active
investors.
Passive investors are those investors those who have become wealthy passively –by inheritance or
by risking the capital of others rather than their own capital. They have a greater need for security
than they have tolerance for risk. Occupational groups such as corporate executives, lawyers,
Chartered Accountants,

Real Estate Millionaire Chapter 1 Analysis
In Chapter 6, I've got the Horse Right Here: The Hopeless Quest for the Perfect Investment, Olen
proceeds with her discussion of the advancement of venture items. The section begins with her
going to the World MoneyShow, a yearly speculation tradition held each February in Orlando, and
also in different areas over the U.S and in different nations. She reports direct about exhibitors
furthermore, for the most part male conventioneers she met, for example, "Oliver Velez, a day–
exchanging master hawking a $8,000 two–day seminar. Different topics in this chapter incorporate
behavioral back research comes about, online contributing and the Online Exchanging Academy,
demographics of and advertising to MoneyShow participants, different "doomsday" ... Show more
Like the speculation course at Pas Tina, Olen goes to a land "class" keep running by Kiyosaki
subordinates to encounter it direct. The program ends up being an infomercial for another class
costing a few hundred dollars. As per Olen, roughly a large portion of the general population in the
room joins. Other subjects incorporated into this part are Kiyosaki's experience, messages,
advertising strategies, and allegations against him, U.S. homeownership drifts, the risky use of
genuine bequest theory by a few people to support stale or lessened wages, all the more unflattering
disclosures about David Bach, different bombed land theorists, and the 2000s housing bubble and
collapse. Olen likewise raises an intriguing point about Kiyosaki's worshipped (yet unknown) cash
guide; "Exactly who was Rich Dad, all things considered? Without a doubt his name ought to be
regular information. Be that as it may, it's most certainly

Global Credit Availability Essay
Global Credit Availability:
In today's world of personal finance and economics, with the global perspective being the primary
focus. Corporations, just like individuals, are looking at expanding their horizons and saving or
making as much profit as they can. How do they accomplish this gigantic and often expensive
proposition? The answer to this is through credit. However I poise a question to everyone. Is the
ease of which to receive credit today a hindrance and detriment to all of us, or is it the answer we
have all been looking for? I will show you both sides of this situation and you are the judge.
The term credit according to the 1992 issue of New Webster's Dictionary is; a ... Show more content
on Helpwriting.net ...
In the report, Lesson's from the U.S. experience;
"The full benefits of comprehensive credit reporting have yet to be realized in most other countries,
because the amount of personal credit history available to lenders for assessing risk varies widely
around the globe. Historically, credit reporting in most countries began with the sharing of so called
"negative" information (delinquencies, bankruptcies, etc.) on borrowers. Only gradually and
recently has information about the successful handling of accounts (prior and current) been
contributed to the data repository (1)."
Translated this means that other countries mostly report only negative activity which restricts the
availability of credit to its population, resulting in slower or non growth economies.
So what are the benefits of issuing credit? After a quarter century of experience within a
comprehensive reporting environment the United States has produced an impressive list of benefits.
In the report, Lesson's from the U.S. experience; "Detailed information about a borrower's past
payment history, including accounts handled responsibly, as well as a current profile of the
borrower's obligations and available credit lines have proved to be an important tool for assessing
risk. The resulting

Bill Miller Case
John Westby–Gibson
FIRE 461 – spring 2015
Assignment: Bill Miller and Value Trust Case Brief
Conventional academic theories suggest that in markets characterized by high competition, easy
entry, and information efficiency, it would be extremely difficult to beat the market on a sustained
basis. William H. (Bill) Miller III, a mutual fund manager of Baltimore, Maryland – based Legg
Mason, seemed to defy such theories while managing Legg Mason's $11.2 billion Value Trust.
Miller and Value Trust outperformed the S&P 500 for 14 consecutive years, the longest success
streak for any portfolio manager in the mutual–fund industry. Proponents of academic theory have
explained this extraordinary success as luck, meanwhile others attribute the ... Show more content
on Helpwriting.net ...
The investor would reasonably expect the luck of the superstar manager to either run up, or would
find that the same gross returns could be realized by constructing a large equity portfolio of just
about any other group of stocks, but that after fees and expenses the net return would be far less.
An investor who instead believed that it was Bill Miller's skill and strategy which allowed Value
Trust to achieve an average annual return of 14.6% over 14 years would still not rationally invest in
Value Trust as of the middle of 2005. By analyzing the key elements of Miller's contrarian
investment strategy, one can better understand if investing in shares of Value Trust at this time
would be a rational choice. One should view the potential investment in Value Trust with the same
mindset that Miller has when he analyzes potential investments to be made on behalf of the fund. In
other words, the question that should be asked is, "would Bill Miller invest in Value Trust had he not
been its fund manager or affiliated with Legg Mason?" Miller's emphasis on investing in pessimistic
markets and in businesses everybody is fleeing wouldn't hold up here. By 2005, he is a superstar
fund manager whose halo effect attracts more investors with expectations that continued abnormal
returns are on the horizon. Further, even if investors weren't buying shares of Value Trust, it is
reasonable to assume that by 2005 they were closely watching its

From the Efficient Market Hypothesis to Behavioral...
From the Efficient Market Hypothesis to Behavioral Finance
How Investors' Psychology Changes the Vision of Financial Markets by ADAM SZYSZKA
Poznan University of Economics Poland adam.szyszka@ae.poznan.pl
I. Introduction
The efficient market hypothesis (EMH) has been the key proposition of traditional (neoclassical)
finance for almost forty years. In his classic paper, Fama (1970) defined an efficient market as one
in which "security prices always fully reflect the available information" [p.383]. In other words, if
the EMH holds, the market always truly knows best. Until the mid–1980s the EMH turned into an
enormous theoretical and empirical success. Academics from most prestigious universities and
business schools developed ... Show more content on Helpwriting.net ...
But even if irrationality becomes common for a relatively large group of investors who act in a
correlated manner, and therefore are able to move prices away from fundamental levels, it is
assumed that rational arbitrageurs will quickly notice the mispricing and act appropriately. By
selling the overpriced asset on one market and buying the same or similar asset on the other cheaper
market, they will create additional market forces that will bring asset prices back to equilibrium
levels. It is assumed that there are many rational arbitrageurs who act quickly and without any
constrains.
Electronic copy available at: http://ssrn.com/abstract=1266862
The argumentation in favor of the EMH seems quite appealing. In short, it follows like that: When
all people are rational markets are efficient by definition. When some people are irrational, their
behavior is usually uncorrelated and the impact of their trades is too weak to influence prices.
Finally, when sometimes irrational investors behave in a correlated manner (like a herd) and they
sometimes have enough of a market force to drive the prices away from fundamentals, then active
and unlimited trades of rational arbitrageurs will countervail and bring the prices back to right
levels. The EMH is closely related to two other cornerstones of neoclassical financial economics:
the Capital Asset Pricing Model (CAPM) developed independently by Sharpe

A Research On Corporate Finance And The Proposed Ideas On...
Literature Review
In recent observation and research, the topic of corporate finance and the proposed ideas on how
make them more efficient for professional has been established in each industry and explored
further. In the research article, Whither Efficient Markets? Efficient Market Theory and Behavioral
Finance (2010), expands on the research proposed that issues in the measurements of markets and
theories surrounding behavioral finance can be addressed through policy and proper finance
knowledge. The strategy or methodology in which the author illustrates is experimental and
expected cause and effect relationship. The supported evidence used in the testing gave background
to the subtopic and conclusion question illustrated in week 8. The author used several studies from
past industries and decades to illustrate ethical behavior behind investment and the changes in
prices. 'The theory that stock prices instantaneously adjust to reflect new information leads to the
view that stock prices are unpredictable and follow a random walk. "If the flow of information is
unimpeded and immediately reflected in stock prices, then tomorrow's price change will reflect only
tomorrow's news and will be independent of the price changes today (2010). This article contributes
to research observed and adds key information to the hypothesis.
Similarly, For Darus (2011) and Demuth (2011), the scholarly journals and show the pattern from
methodology and approaches to how and why the theory

The Behavioral Finance Paradigm And Its Derived...
M11EFA
BEHAVIOURAL FINANCE
COURSEWORK
Name: Thi Thanh Van Mai
Student ID: 6026628
What contribution can behavioural finance make to the explanation of stock market bubbles and
crashes?
Table of Contents
I. Introduction 3
II. The behavioral finance paradigm and its derived explanations of the investors' beliefs 3
III. Behavioral Theories used in the finance markets 4
IV. Empirical Evidences in the stock markets 6
V. Conclusion 7
VI. References 8
I. Introduction
There have been a number of models in the traditional finance paradigm which have the common
assumption that the investors would act rationally and consider all sources of information in their
marking or investing decisions. That would also lead to ... Show more content on Helpwriting.net ...
In this trend, there are several models to support this view of these investors, including the Modern
Portfolio Theory (MPT), Capital Asset Pricing Model (CAPM) and Arbitrage Pricing Theory (APT)
(Fama and French, 2004; Perold, 2004). They have been the main instruments that the rational
expectation based theories have been deploying. However, this traditional paradigm has been
analyzed by a number of researches that the information should not be considered to have a very
important role in affecting investors (Miles and McCue, 1984), Titman and Warga (1986), Lusht
(1988) and Liu and Mei (1992).
II. The behavioral finance paradigm and its derived explanations of the investors' beliefs
This was also the driving dynamic for the behavioral finance paradigm, which has the origin from
the above challenges that the traditional paradigm has had. From its viewpoint, the investments that
are made used to be made irrationality. Besides, this paradigm also made attempts to explore into the
investment market phenomena by proposing the two doctrines that the agents have been failed to
update their beliefs correctly, and that there is the typical deviation from the ordinary process of

making choices of investments of the investors (De Long, Shleifer, Summers and Waldmann, 1990;
Froot and Obstfeld, 1991). In other words, from the viewpoint of the behavioral finance paradigm,
these two are the main causes of the stock

The End of Behavioral Finance
CFA Institute The End of Behavioral Finance Author(s): Richard H. Thaler Source: Financial
Analysts Journal, Vol. 55, No. 6, Behavioral Finance (Nov. – Dec., 1999), pp. 12–17 Published by:
CFA Institute Stable URL: http://www.jstor.org/stable/4480205 Accessed: 17/04/2009 10:10 Your
use of the JSTOR archive indicates your acceptance of JSTOR 's Terms and Conditions of Use,
available at http://www.jstor.org/page/info/about/policies/terms.jsp. JSTOR 's Terms and Conditions
of Use provides, in part, that unless you have obtained prior permission, you may not download an
entire issue of a journal or multiple copies of articles, and you may use content in the JSTOR
archive only for your personal, non–commercial use. Please contact the ... Show more content on
Helpwriting.net ...
The argumentthat asset prices are set by rational investors is part of the grand oral traditionin
economics and is often attributedto Milton Friedman, one of the greatesteconomists of the century
and one of the greatestdebatersof all time. But the argument has two fundamental problems. First,
even if asset priceswere set only by rationalinvestors in the aggregate, knowing what individual
investors are doing might still be of interest. Second, although the argumentis intuitively appealing
and reassuring, its adherents have rarely spelled it out carefully. Suppose a markethas two kinds of
investors: rational investors (rationals), who behave like agents in economics textbooks,and quasi–
rational investors (quasi 's),people who are trying as hard as they can to make good
investmentdecisions but make predictablemistakes. Suppose also that two assets in this market,X
and Y, areobjectivelyworth the same amount but cannotbe transformedfrom one into the other.
Finally,assume that the quasi 's thinkX is worth more thanY, an opinion thatcould change (quasi
'soften changetheirminds) while the rationalsknow that X and Y are worth the same. What
conditions are necessary to assure that the prices of X and Y will be the same, as they would be in a
world with only

Essay on The Efficient Market Hypothesis
1. INTRODUCTION
The efficient market, as one of the pillars of neoclassical finance, asserts that financial markets are
efficient on information. The efficient market hypothesis suggests that there is no trading system
based on currently available information that could be expected to generate excess risk–adjusted
returns consistently as this information is already reflected in current prices. However, EMH has
been the most controversial subject of research in the fields of financial economics during the last 40
years. "Behavioural finance, however, is now seriously challenging this premise by arguing that
people are clearly not rational" (Ross, (2002)). Behavioral finance uses facts from psychology and
other human sciences in order to ... Show more content on Helpwriting.net ...
The weak–form efficiency cannot explain January effect. In semi–strong–form efficient market, to
test this hypothesis, researchers look at the adjustment of share prices to public announcements such
as earnings and dividend announcements, splits, takeovers and repurchases. As time goes, later tests
tend to be not supportive to EMH. For instance, semi–strong–form efficiency cannot explain the
pricing/earning effect. In strong–form efficiency, the highest level of market efficiency, Fama (1991)
pointed out the immeasurability of market efficiency and suggested that it must be tested jointly
with an equilibrium model of expected. However, perfect efficiency is an unrealistic benchmark that
is unlikely to hold in practice.
Last but not least important, an efficient capital market is one in which stock prices fully reflect all
available information. However, the paradox is that since information is reflected in security prices
quickly, knowing information when it is released does an investor little good. Furthermore, it is
impossible to create a portfolio which would earn extraordinary risk adjusted return. As a
consequence, all the technical and fundamental analysis are useless, no one can consistently
outperform the market, and new

Essay on Financial Faith Integration
Corporate Finance: Integration of Faith Paulette Chapman, Lisa Cooke–Moore, Tori Curley, Janelle
Dawkins, and Anthony Donkoh 201230 Summer 2012 BUSI 530–B05 LUO Managerial Finance
Liberty University Dr. Halstead July 1, 2012
Abstract This essay will provide a scriptural key to understanding the topics of finance in a Christian
worldview perspective. The illustrations will be reflected through the events found in God's word,
providing a greater understanding into the relevance of the Bible in today's economic world. It will
show the importance of the integration of faith, as God has provided His wisdom for today in the
illustrations of the Holy Word. Refer to II Timothy 3: 16–17 (New King James ... Show more
Proverbs 11:1(NKJV) states; "The Lord detests dishonest scales, but accurate weights find favor
with him." Companies that wish to be profitable are those that use just weights. They work at
satisfying both consumers and employees by building honest, meaningful, and long lasting
relationships (Brealey, et al., 2012, p. 15). In 1Peter 5:2–4(NKJV) we find these words:
"Shepherd the flock of God which is among you, serving as overseers, not by compulsion but
willingly, not for dishonest gain but eagerly; nor as being lords over those entrusted to you, but
being examples to the flock; and when the Chief Shepherd appears, you will receive the crown of
glory that does not fade away. "
Leverage
Financial leverage is a company's ability to pay its debt. It refers to the use of debt with the intention
of increasing the potential return of an investment. This debt can increase returns on shareholders in
good times and reduce them in bad times (Brealey, et al., 2012, p. 92). A Christian practicing in a
financial advisor capacity is morally obligated to warn companies or consumers against becoming
indebted if they are at a high risk of default. According to Liang (2007), biblical teachings provide
many insights into the excessive use of debt in financial transactions. As confirmation, in

Parent Should Educate Children An Early Age
Parent should educate the children an early age. Financial education is a very important lesson to
protect people from financial crisis. Parents should educate their children about finance as early as
they can. Children have the ability to grasp information. This will help them to have a balanced life
as they become an adult. Teaching children about finance is a fundamental lesson. Good money
management is very important. For example, when I first started working, I was thirteen years old.
Since I was young, I have been managing my finances very well. I never liked to buy or owe
anything that I cannot afford. If I have a plan to purchase, I always check my account. Then, I make
a decision based on the money that I have. Just because I ... Show more content on Helpwriting.net
...
However, in the Ethiopian tradition, fathers have the authority and responsibility over finances.
When children want something, they have to ask their father. Therefore, when I was young, my
father was the one who had authority over our finance. My father was well experienced about
money management. For example, if there is a plan to go shopping, my parents will sit around the
table the discuss their finances. Once when they come to an agreement, they will go to the market
for shopping. They always remain within their budget. Besides, when my parents talk about money,
they never invite children into discussion. My parents don't believe children should come to discuss
about finance with their parents. The main reasons are that they don't want to put the burden and
stress on their children. Stress is usually caused by too much pressure being put on us by others.
However, my parent's financial management strategies were a life–changing lesson for me. I learned
from my parents the very basic lessons, how to manage finances. I learned the value of money as I
watched and observed my parents at a young age. I remember my father saying," It's not how much
money you make, it is how you manage your money is what matters the most. If you know how to
handle your money properly, your money will take care of you as well." He also said, "You never
know what the days will bring life. You should always save money to the side in case of

Phychology Of Poverty Analysis
"On the Phychology of poverty," an article written by Johannes Hanshofer and Ernst Fehr, they form
ideas based off their collaborated hypothesis. Poverty has psychological consequences that can hold
someone in poverty due to economic behaviors and environment (Hanshofer & Fehr 862). These
environmental situations are the leading factor of re–inforced poverty (Hanshofer & Fehr 862). The
authors have also found studies that suggest poor people often have short–sided views when it
comes to income prosperity and are careful when it comes to risk taking behaviors (Hanshofer &
Fehr 862). Unlike the article "Some consequences of Having Too Little," Hansofer and Fehr believe
that poor people choose safe options when taking risks in their finances , as opposed to already
being in financial debt and choosing to take more risks (862; Shah, Mullainathan and Shafir 684).
Hanshofer and Fehr came to understand in their words, "poorer households ... Show more content on
Helpwriting.net ...
When given the opportunity to get a current or "safe" payment versus a delayed payment, they jump
at the first option. Poor people are focused on the now that they rarely ever think about future
outcomes. When focusing on a current situation, cognitive reflexes are impaired which causes a
trickle–down effect for poor decision making (Hanshofer & Fehr 866). For example, when all of
your energy, time and focus are dedicated to one thing it is hard to be fully minded on other tasks.
Scarcity takes a role in psychological behavior also. With scarce money resources, stress soon
follows. According to the Easter Paradox, simplistically, money brings happiness and poverty brings
stress or anxiety (Hanshofer & Fehr 866). The authors found evidence from related articles to prove
their hypothesis in hopes that we all can dive deeper into the issues such as poverty; behavioral and

Review Questions for Microeconomic Concepts
CHAPTER 6
Review Questions:
6–2 What is the term structure of interest rates, and how is it related to the yield curve?
Term structure interest rate is a rate which relates the interest rate or rate of return to the time to
maturity.
The yield curve is a graph of relationship between the debt's remaining time to maturity and its yield
to maturity. Term structure of interest rate can be shown graphically by yield curve. The shape of the
yield curve will show the useful ways to future interest rate expectation.
6–3 For a given class of similar–risk securities, what does each of the following yield curves reflect
about interest rates: (a) downward–slopping; (b) upward–slopping; and (c) flat? Which form has
been historical dominant?
For a given class of similar–risk securities, A downward yield curve shows cheaper long–term
borrowing lists than the short–term borrowing lists (inverted yield curve). Upward yield curves
represent cheaper short–term borrowing lists than the long–term borrowing lists (normal yield
curve). The flat one shows similar borrowing costs for both short–term and long–term loans.
6–4 Briefly describe the following theories of general shape of the yield curve: (a) expectation
theory; (b) liquidity preference theory; and (c) market segmentation theory. Expectation theory
implies that the yield curve reflects investors' expectation about the future interest rate and inflation.
Higher the future inflation rate, higher the long–term

Behavioral Finance
Behavioral Finance
Jay R. Ritter
Cordell Professor of Finance
University of Florida
P.O. Box 117168
Gainesville FL 32611–7168 http://bear.cba.ufl.edu/ritter jay.ritter@cba.ufl.edu
(352) 846–2837
Published, with minor modifications, in the
Pacific–Basin Finance Journal Vol. 11, No. 4, (September 2003) pp. 429–437.
Abstract
This article provides a brief introduction to behavioral finance. Behavioral finance encompasses
research that drops the traditional assumptions of expected utility maximization with rational
investors in efficient markets. The two building blocks of behavioral finance are cognitive
psychology (how people think) and the limits to arbitrage (when markets will be inefficient).
The growth of behavioral ... Show more content on Helpwriting.net ...
This is especially true when one is dealing with a large market, such as the Japanese stock market in
the late 1980s or the U.S. market for technology stocks in the late 1990s. Arbitrageurs that attempted
to short Japanese stocks in mid1987 and hedge by going long in U.S. stocks were right in the long
run, but they lost huge amounts of money in October 1987 when the U.S. market crashed by more
than the Japanese market (because of Japanese government intervention). If the arbitrageurs have
limited funds, they would be forced to cover their positions just when the relative misvaluations
were greatest, resulting in additional buying pressure for Japanese stocks just when they were most
overvalued!
2. Cognitive Biases
Cognitive psychologists have documented many patterns regarding how people behave.
Some of these patterns are as follows:
Heuristics
Heuristics, or rules of thumb, make decision–making easier. But they can sometimes lead to biases,
especially when things change. These can lead to suboptimal investment decisions.
When faced with N choices for how to invest retirement money, many people allocate using the
1/N rule. If there are three funds, one–third goes into each. If two are stock funds, two–thirds goes
into equities. If one of the three

The Efficient Markets Hypothesis Posits That `` Security...
The efficient markets hypothesis posits that "security prices fully reflect all available information
(Fama, 1991)." In an efficient market, a stock's price accurately depicts its fundamental value.
However, researchers have shown that real markets are actually inefficient, and are hindered by
risky arbitrage and irrational investors. Because of market frictions, incomplete information, and
systematic biases, stock prices react to changes in uninformed demand in addition to actual
fundamental shifts, resulting in sustained and pervasive mispricing. This essay aims to challenge the
theory of market efficiency, and in so doing, support the position that stock prices do not always
reflect stocks' fundamental values. Riskless arbitrage is one underlying assumption of the efficient
markets hypothesis. It theorizes that any opportunities to profit through mispriced stocks will be
immediately exploited by savvy arbitrageurs and subsequently eliminated, returning market price to
equilibrium at its fundamental value. However, in real markets, arbitrage is risky due to market
frictions and incomplete information (Shleifer & Summers, 1990). The market friction of transaction
costs such as commission and the bid–ask spread may limit the willingness of investors to
participate in arbitrage. Likewise, incomplete information creates risk for arbitrageurs, particularly
when shorting overvalued stocks. The market may potentially do well and thus justify the
overpricing, or the market may

A Survey of Behavioral Finance Summary
A Survey of Behavioral Finance Nicholas Barberis and Richard Thaler
In this handbook, Barberis and Thaler define the differences between traditional finance and
behavioral finance.
Traditional finance is rational.Rationality means two things; correct Bayesian Updating and choises
consistent with expected utility. On the other hand behavioral finance assumes that market is not
fully rational and analyzes the facts when the some of the princibles are loosen up.
This essay also discusses about two main topics; limits to arbitrage and psychology. These two
topics are known as the two buildings blocks of the behaviour finance.
In the normal markets security prices equal to fundamental value.In this sitiuation. ... Show more
Barberis and Thaler clasify the behavioral models on whether their mechanism centers on beliefs or
on prefences. the result of systematic errors that investors make when they use public information to
form expectations of future cash flows. Conservatism and representativeness cause this.
Behavioral finance has also discuss about how certain groups of investors behave, and what kinds of
portfolios they choose to hold and how they trade over time. It is simply to explain the actions of
certain investors, and these actions also affect prices. Some of the actions of investors and the
behavioral ideas are insufficient diversifation, naive diversifation,excessive trading, the selling and
buying decision.
In the corporate finance part of the hand book; gives opinions to rational managers in a mispricing
market and gives examples for "market timing".
On the conclusion of the hand book they mentioned that behavioral finance will be develop on
coming years. This handbook publish on 2002 and it is valid nowadays. After I read this book I
mentioned how important to analyszing the market as an investor by the view of the behavioural
finance.
PINAR TUNA

Statement Of Purpose In Financial Engineering
From childhood, I have been passionate about mathematics and problem solving. Given the
quantitative focus of engineering, I pursued my undergraduate studies in civil engineering. During
my years in college, I used my elective courses to explore subjects from different disciplines. Of
these, I developed a deep interest in finance, particularly the financial markets and trading. To know
more in finance, I later enrolled in CFA level 1, participated in virtual stock market competitions,
did an internship in equity research and started trading with some personal funds.
To further my passion for financial markets, I took up a job as a derivatives trader, trading
commodity futures on Chicago mercantile exchange(CME). As a trader, I received intensive ...
Show more content on Helpwriting.net ...
In order to work towards this goal, I knew I had to upgrade my knowledge and skills. This was
when I first felt the need to enroll in a master's program in Financial Engineering. Upon exploration,
I realized that the multi–disciplinary approach of financial engineering made it an ideal match for
my career aspirations, as it involves a combination of engineering, mathematics and finance, all of
which I am deeply interested in and have the sufficient background to excel. Finally, having realized
the fast–paced changing environment of finance and trading brought about by financial engineering,
I have decided to enroll in a financial engineering program to gain graduate–level knowledge in
quantitative finance and get updated of the latest advances in the financial Industry. Enrolling in
such a program would improve my knowledge, skill set and help me become a better equipped
Quantitative trader, which I wish to become in the

Efficient Market Hypothesis and Behavioral Finance
Efficient market hypothesis and Behavioral finance
Fall 2011 Teacher: Guðrún Johnsen V–780–BFIM
Student: Rúnar Guðnason SSN:1804784939
Table of Contents
Introduction ................................................................................................................................ 3 1.1
Efficient market hypothesis .................................................................................................. 3 1.2 A
criticism on the efficient market hypothesis ................................................................. 4 2.1
Behavioral finance and the efficient market hypothesis ...................................................... 5 2.2
Prospect theory and Loss aversion ... Show more content on Helpwriting.net ...
The strong form claims that asset prices fully reflect all of the public and inside information
available, therefore no one can have advantage on the market in predicting prices. The introduction
of the efficient market hypothesis marked a turning point in scholarly researches on security prices
and many studies have been made since to test market efficiency. Many studies of the weak form of
market efficiency have been made on technical analyses and how investors use them to predict about
future security prices by looking at past prices. In 1969 Fama, Fisher, Jensen and Roll were the first
to test the semi–strong form of market efficiency by using event studies. Their conclusion was that
stock prices adjust very rapidly to new information. Many scholars since then have studied how new
information affect the market by using event studies. Many articles about the strong form have also
been published and most of them study professional investor performances in the stock market
(Malkiel, 2003). Many of the studies on technical analyses, event studies and the performance of
professional investors in the stock market have reached the conclusion that markets are efficient and
therefore that stock prices are right (Malkiel, 2003). Before studies of behavioral finance became
popular, evidences began to appear that were inconsistent with the hypothesis of market efficiency.
1.2 A criticism on the efficient market hypothesis
In 1976, Rozeff and Kinney published an

Stock Market Extinction Hypothesis
Introduction
Werner F. M. De Bondt and Richard Thaler conducted a study to investigate the stock market. This
study examined the impact the overreaction of market behaviour and the psychology of individual
decision making has on stock prices. The main goal of this study was "to test whether the
overreaction hypothesis is predictive" (pg. 795). They tested two hypotheses (pg. 795):
1. Extreme movements in stock prices will be followed by subsequent price movements in the
opposite direction.
2. The more extreme the initial price movement, the greater will be the subsequent adjustment.
Their findings were published in an article titled "Does the Stock Market Overreact?" in July 1985.
Evaluation of "Does the Stock Market Overreact?"
De Bondt and Thaler based their study mainly off of the research conducted by D. Kahneman and A.
Tversky. Bayes Theorem is a formula used to determine the conditional probability of an event
occurring based on relevant information (Investopedia, 2016). When new information occurs, one
might use that information to predict change in stock prices. However, current research is suggesting
that Bayes' rule is not an accurate representation of how individuals respond to new information (pg.
793). It is believed that people have a tendency to place more importance on recent information than
historical information. This theory was supported by J.M. Keyes, who made one of the earliest
observations about market overreaction (pg. 793). His observation was

Key Concepts And Explanations Of The Efficient Market...
Key Concepts and Explanations of the Efficient Market Hypothesis Overview Efficient Market
Hypothesis (EMH) is a theory that states that it is impossible to beat the market due to the following
reasons: Assumption that markets are efficient Investors make rational decisions Market participants
are sophisticated Investors act quickly on information as it becomes available Since prices reflect all
information there are no bargain prices. In efficient markets, prices become unpredictable and there
is no investment pattern. Therefore, those who only support the EMH do not believe behavioural
finance is necessary. Eugene Fama, known as "the father of finance", has been recognized for his
many contributions to the finance and economic world. Fama proposed the three types of efficiency:
weak, semi–strong and strong. This concept regarding efficiency is still being used today. The weak
form of efficiency assumes that all past market trading information is reflected in stock price. The
semi–strong form states that all publicly available information regarding the prospects of a firm is
reflected in the price. Lastly, strong form suggests that all information relevant to the firm, including
insider information, is reflected in stock price. Justification of the Efficient Market Hypothesis EMH
is a commonly used and is known as the foundation of financial theory. Those in support of this also
tend to focus on the random–walk hypothesis. If the market is efficient then

Why Is A Financial System Important?
Why is a financial system important to an HCO; does a budget really make a difference? The HCO
is undergoing many exciting changes that affect how the HCO operates. There are technological
Electronic Health Records (EHR) and Electronic Medical Records (EMR) upgrades, payment, and
system billing changes and practices, and quality improvement measures. The swift changes in
healthcare include costs that require a financing system. Kenneth White and Allen Griffith inform
"The financial plan is a reality check for the HCO organization" (433). A finance system records and
reports HCO transactions. The recorded transactions are useful to set and achieve performance
improvement measures. As performance improvement goals are reached, new financial
opportunities are analyzed to help the governance board make financial arrangements. Additionally,
a finance system provides an arc of safety "to protect assets and resources from theft, waste, loss and
distortion" (White and Griffith 415). With this knowledge, it is important for each department to
account for their expenses to keep the HCO in the positive financially. This takes time and effort to
research, analyze, and forecast where funds should be allocated in the present and future. All
stakeholders, including clinical professions, Chief Executive Officers (CEO), Chief Operating
Officer (COO), and Chief Financial Officer (CFO), administration, governance board, and
community play a role in balancing the financial

The Theory Of Behavioral Finance
1. Introduction
Efficient market hypothesis had been a topic of significant interest to the academicians, practitioners
and the corporate executives for a long period. Under Eugene Fama's(1965) survey, it is reflected
that there is a turning point of the modern finance by efficient market hypothesis. However, there
had been a shift in the focus to the theory of behavioral finance (Shiller, 2003) recently. Behavioral
finance is the financial structure which supplements various parts of finance (Gallagher, 2003). It is
the module which supports and displays the behavior of the investment managers and assists in the
overall process of management. Therefore, behavioral finance is a unique art which is required to be
selected in order to understand the outcomes of interactions between the investment managers and
the corporates. Given this background, this essay examines how the behavioral finance has
challenged the efficient market hypothesis and the implications of behavioral finance for investment
managers.
2. Definition and concept of efficient market hypothesis
According to Eugene Fama's (1970), with the rise in the information, there is rapid spreading of the
information which is immediately incorporated in the security prices. This is called the efficient
market hypothesis and it is associated with "random walk" theory. The random walk theory which
suggests the randomness of changes in a series of price forms the basis of efficient market
hypothesis. Thus, the

The Old Constant : Human Psychology
The Old Constant: Human Psychology
According to the Efficient Market Hypothesis, competition will instantaneously cause the effects of
new information to be reflected in actual share prices. This assumption presupposes that the
participants in a market act rationally. The concept of the homo economicus has a long–standing
history in economics and is a relevant premise of efficient markets. According to the founder of
economic thought, Adam Smith, the homo economicus is human who constantly peruses self–
interest while always acting rational to reach his subjectively defined ends (Coase, 1994). At times,
psychologists joined this discussion and challenged the concept of the economic man. Among the
most prominent researchers who question the rationality in human decision making is Daniel
Kahneman. Kahneman challenged the rationality in decision making processes and is one of the
founders of behavioral economics. Behavioral economists argue that markets are not perfectly
efficient because various cognitive biases in humans (HBR, 2015). Among the most prominent
cognitive biases that influence stock prices are the Overconfidence Hypothesis and the Disposition
Effect. The Overconfidence Hypothesis describes the tendency of individual investors to trade
excessively based on a mistaken belief that they can pick winners and losers better than investment
professionals. Overconfidence is characterized by three main tendencies. First, overconfident
investors tend to overreact to

An Analysis Of Assess And Balance Financials
Strategic Position:
Asses and Balance Financials is a small firm that works with the government on the county level
and helps departments in the county with their financial needs. This firm analyzes, creates, and
finalizes budgets for these departments and ensures that each is equipped with the necessaries for
their role in the county. Assess and Balance Financials is in search of filling a position for a budget
analyst. Currently, there are two interns in the firm, a staff accountant, a purchasing coordinator, and
the finance director. This firm works closely with the county manager as well. The firm is struggling
to function with the employees that are currently working, but they can provide the minimum
required information, so the firm ... Show more content on Helpwriting.net ...
Recruitment: In order to recruit to fill this budget analyst position, we will be seeking individuals
who have a four–year, bachelor's degree, in accounting or finance. At Assess and Balance
Financials, needs qualified individuals who understand basic accounting and financial rules and
equations learned through course material and experience. This is best for Assess and Balance
Financials because the material covered affects many firms and creates a domino effect down to the
taxpayers if the numbers are not handled with precision and accuracy, so it is imperative that this
individual understand and have experience working with budgets and have knowledge in
accounting. This audience is best for Assess and Balance Financials because these individuals will
have the four–year degree and internships and if older, some additional job experience.
In order to fill this position, Assess and Balance Financials will look internally, at the interns, and
seek to post positions online to Indeed. Assess and Balance Financials will benefit from this
recruitment, because it will already be aware of the work ethic and performance from the interns.
Additionally, Assess and Balance Financials will know that the interns fit into the organization
culture and understand expectations. Interns will also be familiar with the departments and will
require less training as

Behavioral Finance And Its Effects On The Economy

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