This document discusses the role of behavioural finance in financial markets. It begins by outlining some key limitations of traditional finance theories, such as assuming complete rationality of investors and ignoring emotional and psychological factors. It then discusses the development of behavioural finance, which incorporates insights from psychology to develop a more realistic understanding of investor behaviour. Some common cognitive biases and heuristics identified by behavioural finance research that influence investment decisions are also summarized, such as loss aversion and herd behaviour. While behavioural finance does not directly help raise finance, the document argues it could indirectly do so by reducing bubbles and increasing investor confidence by accounting for common irrational biases in decision-making. In conclusion, behavioural finance provides a useful framework but requires further
Stocks are considered among many investors as fundamental for return-on-investment. This is especially the case over the long run, where average returns surpass those of bonds. Investing in the stock market is not as easy as it may seem and often involves an elaborate understanding of business, market and economic influences in order to be financially successful.
Stocks are considered among many investors as fundamental for return-on-investment. This is especially the case over the long run, where average returns surpass those of bonds. Investing in the stock market is not as easy as it may seem and often involves an elaborate understanding of business, market and economic influences in order to be financially successful.
The Asian Bureau of Finance and Economic Research is pleased to present its first Digest. This Digest summarizes selected papers presented in the inaugural ABFER Annual Conference 2013 (http://www.abfer.org/programme.html).
Inaugural Speech for DBA program at University of Colombo. A Survey and View of the Field from the standpoint of a Financial Capital and Economic Society specialist. It is a Developing Countries Viewpoint.
The Indian Financial Market Is Touted as Benchmark in Today’s Global Economic...paperpublications3
Abstract: To describe my contents in a concise manner the above topic throws light on credentials of a Indian financial market in both theoretical and pragmatic ways. Through this I want to highlight the working of share markets and how a common investor can achieve better return from his or her capital investment. Profit is the only “mantra” that can drive success in a capital market and for ensuring profitability one needs knowledge and self-interest. I feel privileged to write this topic and describe my own experiences of share market in a pictorial and best possible manner.
Does Bank Credit Have Any Impact on Nigeria’s Domestic Investment?iosrjce
There is an extensive literature on the role of the bank lending and credit facilities in Nigeria but
most of these literature concentrate on its impact on the gross domestic product. This study focuses on the
impact of Nigeria’s banking sector on domestic investment from 1980 to 2012 bearing in mind that funding is
one of the major challenges of domestic entrepreneurs in Nigeria. A domestic investment model was adopted
and the unit root test was first applied to the data set. All the data are stationary and the ordinary least square
method was used to identify the impact of capital market activities on domestic investment in Nigeria using the
cointegration technique. Findings reveal that bank credit negatively though significantly impacted on domestic
investment in the long run while its short run impact is both positive and significant. This is an indication that
financial intermediation (captured by bank credit to private sector) is a strong driver of domestic investment in
Nigeria only in the short run. The study thus recommends amongst others, the strengthening of Nigeria’s
banking system with more funds and supervisions as well as the encouragement of both foreign and domestic
investments through government’s creation of a more conducive political and economic climate.
A Study on Investment Pattern of Investors on Different ProductsProjects Kart
A study on investment pattern of investors on different products in India using the questionnaires to understand how salaried employees investment pattern and preferences towards different products. Read more on www.projectskart.com for information. An investment refers to the commitment of funds at present, in anticipation of some positive rate of return in future. Today the spectrum of investment is indeed wide. An investment is confronted with array of investment avenues. Among all investment, investment in equity is in best high proportion. This is because the history of stock market is booming and bursts overnight millionaires, an instant pauper.
The aim is to determine the short-term profitability of IPOs and to surrounding the evolution of this profitability on the middle/long run. Therefore, we used the raw initial returns and the adjusted initial returns methods to assess the short-term performance. We determined the long-term performance through the cumulative abnormal returns and the buy-and-hold abnormal returns, abnormal returns being adjusted to the market index and to the market model.
The International Journal of Engineering & Science is aimed at providing a platform for researchers, engineers, scientists, or educators to publish their original research results, to exchange new ideas, to disseminate information in innovative designs, engineering experiences and technological skills. It is also the Journal's objective to promote engineering and technology education. All papers submitted to the Journal will be blind peer-reviewed. Only original articles will be published.
Gaps in the Theory and Practice of Islamic EconomicsIslamic_Finance
This document is a detailed research paper that aims to introduce a third alternative to humanity in addition to capitalism and socialism that would answer some of the inadequacies of each, as well as the analysis of human individual and collective behavior towards scarcity, under the teachings of Islam. The paper also elaborates on the rise of products of ill repute that result from determined refusal to adhere to the decisions of the International Islamic Fiqh Academy. However the paper focuses significantly on identifying several gaps in Islamic economics and proposes ways to fill them, placing such responsibility squarely on Islamic economists
Entrepreneurship is considered as a source of wealth creation, economic growth, social progress, and technological development. The current paper seeks to shed light on obstacles that are impeding business creators to start their businesses. To identify the observed constraints, we developed a questionnaire that we addressed to 120 new entrepreneurs drawing on the theoretical and empirical literature. The application of factor analysis has revealed that business creators’ decision to launch their ventures is hindered mainly by the following factors: lack of managerial and business skills, poor training programs, and risk aversion. The study also suggests some recommendations to alleviate obstacles facing new entrepreneurs when deciding to launch their projects
The Asian Bureau of Finance and Economic Research is pleased to present its first Digest. This Digest summarizes selected papers presented in the inaugural ABFER Annual Conference 2013 (http://www.abfer.org/programme.html).
Inaugural Speech for DBA program at University of Colombo. A Survey and View of the Field from the standpoint of a Financial Capital and Economic Society specialist. It is a Developing Countries Viewpoint.
The Indian Financial Market Is Touted as Benchmark in Today’s Global Economic...paperpublications3
Abstract: To describe my contents in a concise manner the above topic throws light on credentials of a Indian financial market in both theoretical and pragmatic ways. Through this I want to highlight the working of share markets and how a common investor can achieve better return from his or her capital investment. Profit is the only “mantra” that can drive success in a capital market and for ensuring profitability one needs knowledge and self-interest. I feel privileged to write this topic and describe my own experiences of share market in a pictorial and best possible manner.
Does Bank Credit Have Any Impact on Nigeria’s Domestic Investment?iosrjce
There is an extensive literature on the role of the bank lending and credit facilities in Nigeria but
most of these literature concentrate on its impact on the gross domestic product. This study focuses on the
impact of Nigeria’s banking sector on domestic investment from 1980 to 2012 bearing in mind that funding is
one of the major challenges of domestic entrepreneurs in Nigeria. A domestic investment model was adopted
and the unit root test was first applied to the data set. All the data are stationary and the ordinary least square
method was used to identify the impact of capital market activities on domestic investment in Nigeria using the
cointegration technique. Findings reveal that bank credit negatively though significantly impacted on domestic
investment in the long run while its short run impact is both positive and significant. This is an indication that
financial intermediation (captured by bank credit to private sector) is a strong driver of domestic investment in
Nigeria only in the short run. The study thus recommends amongst others, the strengthening of Nigeria’s
banking system with more funds and supervisions as well as the encouragement of both foreign and domestic
investments through government’s creation of a more conducive political and economic climate.
A Study on Investment Pattern of Investors on Different ProductsProjects Kart
A study on investment pattern of investors on different products in India using the questionnaires to understand how salaried employees investment pattern and preferences towards different products. Read more on www.projectskart.com for information. An investment refers to the commitment of funds at present, in anticipation of some positive rate of return in future. Today the spectrum of investment is indeed wide. An investment is confronted with array of investment avenues. Among all investment, investment in equity is in best high proportion. This is because the history of stock market is booming and bursts overnight millionaires, an instant pauper.
The aim is to determine the short-term profitability of IPOs and to surrounding the evolution of this profitability on the middle/long run. Therefore, we used the raw initial returns and the adjusted initial returns methods to assess the short-term performance. We determined the long-term performance through the cumulative abnormal returns and the buy-and-hold abnormal returns, abnormal returns being adjusted to the market index and to the market model.
The International Journal of Engineering & Science is aimed at providing a platform for researchers, engineers, scientists, or educators to publish their original research results, to exchange new ideas, to disseminate information in innovative designs, engineering experiences and technological skills. It is also the Journal's objective to promote engineering and technology education. All papers submitted to the Journal will be blind peer-reviewed. Only original articles will be published.
Gaps in the Theory and Practice of Islamic EconomicsIslamic_Finance
This document is a detailed research paper that aims to introduce a third alternative to humanity in addition to capitalism and socialism that would answer some of the inadequacies of each, as well as the analysis of human individual and collective behavior towards scarcity, under the teachings of Islam. The paper also elaborates on the rise of products of ill repute that result from determined refusal to adhere to the decisions of the International Islamic Fiqh Academy. However the paper focuses significantly on identifying several gaps in Islamic economics and proposes ways to fill them, placing such responsibility squarely on Islamic economists
Entrepreneurship is considered as a source of wealth creation, economic growth, social progress, and technological development. The current paper seeks to shed light on obstacles that are impeding business creators to start their businesses. To identify the observed constraints, we developed a questionnaire that we addressed to 120 new entrepreneurs drawing on the theoretical and empirical literature. The application of factor analysis has revealed that business creators’ decision to launch their ventures is hindered mainly by the following factors: lack of managerial and business skills, poor training programs, and risk aversion. The study also suggests some recommendations to alleviate obstacles facing new entrepreneurs when deciding to launch their projects
Assignment 1 Discussion QuestionThe management of current asset.docxfredharris32
Assignment 1: Discussion Question
The management of current assets and current liabilities in the short run can lead to several challenges for the financial manager. What are some of the more common challenges or problems encountered by the firm in this regard, and what are the possible solutions? Explain your answers.
Assignment 2: Discussion Question
Financial mangers make decisions today that will affect the firm in the future. The dollars used for investment expenditures made today are different from the cash flows to be realized in the future. What are these differences? What are some of the techniques that can be used to adjust for these differences?
Assignment 3: Discussion Question
Valuation of a firm’s financial assets is said to be based on what is expected in the future, in terms of the future performance of the firm, the industry, and the economy. What types of value would you consider when assigning “value” to a firm’s stock or bond? What is the significance of each of the different types of value in the valuation process? Use examples to support your response.
Assignment 4: Discussion Question
The finance department of a large corporation has evaluated a possible capital project using the NPV method, the Payback Method, and the IRR method. The analysts are puzzled, since the NPV indicated rejection, but the IRR and Payback methods both indicated acceptance. Explain why this conflicting situation might occur and what conclusions the analyst should accept, indicating the shortcomings and the advantages of each method. Assuming the data is correct, which method will most likely provide the most accurate decisions and why?
Course Overview (1 of 3)
Defining Finance
Broadly defined, finance is the study of how people manage scarce resources in general, and money and other financial resources in particular. There are two important features that distinguish financial decisions from other types of decisions. The benefits and costs of financial decisions are spread out over time and usually shrouded in uncertainty.
These decisions are made in a financial environment that includes the financial system, institutions, markets, and participants such as individual households, businesses, and governments. It is important to note that a well developed and properly functioning financial system enables the economy to operate efficiently and contributes to the economic growth and development of the country.
Brief History of Finance
Finance emerged as a separate field of study in the U.S. in the early 1900s. At that time finance was taught primarily as a descriptive subject using anecdotes and rules of thumb. The focus at that time was on the formation of new firms, the various types of securities firms can issue to raise funds and the legal aspects of mergers and acquisitions. This continued to be the focus all through the 1920s.
However, during the 1930s the focus shifted to the study of bankruptcy and reorganization, corporate liqu ...
A Study on Investors Perception towards Mutual Fund Investments (With Special...Dr. Amarjeet Singh
This examination on Investors acknowledgment
towards and late improvement and headway of Mutual Fund
premiums in Alwar city goes under the board an area of
organization publicizing. In the wide thought of organization
publicizing it exclusively centers around the exhibiting of cash
related organization specifically basic resources. Well ordered
Indian budgetary market is getting the chance to be engaged
and the supply of various fiscal instruments ought to be in
parity to the premium perspectives of the monetary
authorities. The prime drive of any hypothesis is to get most
extraordinary returned with a base danger and normal
resources allow to the budgetary masters. The examination
gives an information into the sorts of risks which exist in a
mutual save plan. The data was assembled from shared save
budgetary authorities similarly as non basic store examiners of
this industry. The investigation bases on the association
between theory decision and factors like liquidity, cash related
care, and demography. It was found commonly safe resources
and liquidity of store plot are having influence on the
budgetary authority's acumen for placing assets into the
mutual save. With the more broad thought of the distinctive
components of organization publicizing, thing care, mark
tendencies, and money related authority's satisfaction are the
specific regions of the examination. The other displaying limits
like thing progression publicize division, channels of
exhibiting, thing life cycle, scale headway procedures and their
impact of Marketing are completely disposed of from the audit
of this examination. So likewise the availability of substitute
aftereffect of normal hold units and their impact on this
organization thing it also rejected in the examination. In
reality, even in the normal store monetary authorities lead also
the researcher concentrate only the urban theorists and their
anxiety for this examination work. The rustic speculator's
perspectives are totally barred from the investigation.
A Study of Behavioural Factors Affecting Individual Investment Decisionsijtsrd
Although finance has been studied for thousands of years, behavioral finance which considers the human behaviour in finance is a pretty new area. Behavioral finance theories, which might be based totally at the psychology, try to apprehend how feelings and cognitive mistakes impact man or woman traders' behaviour buyers referred to on this look at are referred to person traders .The primary goal of this have a look at is exploring the behavioral factors influencing person buyers' selections on the NSE and BSE Stock Exchange. Furthermore, the members of the family among these elements and funding overall performance also are tested. The have a look at begins with the present theories in behavioral finance, based totally on which, hypotheses are proposed. Then, those hypotheses are examined via the questionnaires dispensed to individual buyers on the Broking Firms, college students and professionals. The data collected from the Stock Broking firms, Students, Professionals through structured questionnaire were examined and data collected were analyzed using Cronbachs Alpha Reliability Test, based totally on which, hypotheses are proposed. The result indicates that there are 5 behavioral elements affecting the funding selections of person investors at the NSE and BSE Stock Exchange Herding, Market, Prospect, Overconfidence gamble's fallacy, and Anchoring ability bias. Most of these elements have mild impacts whereas Market element has high affect. This test also tries to discover the correlation among these behavioral factors and investment overall performance. Among the behavioral factors referred to above, best 3 elements are located to influence the Investment Performance Herding inclusive of shopping for and promoting choice of trading shares extent of buying and selling stocks velocity of herding , Prospect such as loss aversion, remorse aversion, and mental accounting , and Heuristic inclusive of overconfidence and gamble's fallacy . The heuristic behaviors are determined to have the highest advantageous impact at the investment overall performance while the herding behaviors are stated to persuade undoubtedly the investment overall performance on the lower degree. In assessment, the possibility behaviors provide the negative impact on the funding overall performance. Pawankumar S Hallale | Manjiri Gadekar "A Study of Behavioural Factors Affecting Individual Investment Decisions" Published in International Journal of Trend in Scientific Research and Development (ijtsrd), ISSN: 2456-6470, Volume-3 | Issue-6 , October 2019, URL: https://www.ijtsrd.com/papers/ijtsrd28100.pdf Paper URL: https://www.ijtsrd.com/management/business-economics/28100/a-study-of-behavioural-factors-affecting-individual-investment-decisions/pawankumar-s-hallale
Factors Influencing Investment Decisions of Retail Investors- A Descriptive S...inventionjournals
Investment decisions have gained importance due to the general increase in employment opportunities and economic development of a nation. Awareness of investment avenues has led to the ability and willingness of working people to save and invest their funds for returns, in that perspective this study was conducted. The volatile behaviour of markets has challenged the hypothesis of efficient markets which motivates ones to understand the driving forces behind it. It is the major concern for academicians, investors and portfolio managers to understand the reasons causing irrationality in the markets. This paper uses the theory of behavioural finance to examine the factors influencing investment decisions of individual investors. From the extensive literature review, it was found that there is no single factor which influences the investment decisions of an individual. Moreover factors influencing investment decision varies from time to time, place to place, person to person, securities to securities etc. It was suggested that the policy makers of investment avenues must consider all the variables and its impact on the investors investment decisions while introducing any investment avenues to the market.
A Study on Factors Influencing Investment Decision Regarding Various Financia...ijtsrd
In the current era of financial inclusion, digitalization and economy driving towards a faster pace, the investors are very much concerned about their savings which can be transferred into investments. The main purpose of investment is to maximize the returns out of it with minimum expenses and risk. There are various factors which affect the investment decision like demographic factors and behavioural biases which decides the type, tenure, amount of the investment. This paper explores that return, advice, tax benefit, liquidity risk appetite of the investors altogether plays a significant part in influencing the investors. Is there any impact of demographic factors like age, gender and income on factors influencing investment decision tried to find out. The results show that factors influencing the investment decision are influenced by income level not by age and gender. Dr. Ankit Jain | Mr Raj Tandel "A Study on Factors Influencing Investment Decision Regarding Various Financial Products" Published in International Journal of Trend in Scientific Research and Development (ijtsrd), ISSN: 2456-6470, Volume-4 | Issue-6 , October 2020, URL: https://www.ijtsrd.com/papers/ijtsrd33678.pdf Paper Url: https://www.ijtsrd.com/management/accounting-and-finance/33678/a-study-on-factors-influencing-investment-decision-regarding-various-financial-products/dr-ankit-jain
NO1 Uk best vashikaran specialist in delhi vashikaran baba near me online vas...Amil Baba Dawood bangali
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Hybrid optimization of pumped hydro system and solar- Engr. Abdul-Azeez.pdffxintegritypublishin
Advancements in technology unveil a myriad of electrical and electronic breakthroughs geared towards efficiently harnessing limited resources to meet human energy demands. The optimization of hybrid solar PV panels and pumped hydro energy supply systems plays a pivotal role in utilizing natural resources effectively. This initiative not only benefits humanity but also fosters environmental sustainability. The study investigated the design optimization of these hybrid systems, focusing on understanding solar radiation patterns, identifying geographical influences on solar radiation, formulating a mathematical model for system optimization, and determining the optimal configuration of PV panels and pumped hydro storage. Through a comparative analysis approach and eight weeks of data collection, the study addressed key research questions related to solar radiation patterns and optimal system design. The findings highlighted regions with heightened solar radiation levels, showcasing substantial potential for power generation and emphasizing the system's efficiency. Optimizing system design significantly boosted power generation, promoted renewable energy utilization, and enhanced energy storage capacity. The study underscored the benefits of optimizing hybrid solar PV panels and pumped hydro energy supply systems for sustainable energy usage. Optimizing the design of solar PV panels and pumped hydro energy supply systems as examined across diverse climatic conditions in a developing country, not only enhances power generation but also improves the integration of renewable energy sources and boosts energy storage capacities, particularly beneficial for less economically prosperous regions. Additionally, the study provides valuable insights for advancing energy research in economically viable areas. Recommendations included conducting site-specific assessments, utilizing advanced modeling tools, implementing regular maintenance protocols, and enhancing communication among system components.
TECHNICAL TRAINING MANUAL GENERAL FAMILIARIZATION COURSEDuvanRamosGarzon1
AIRCRAFT GENERAL
The Single Aisle is the most advanced family aircraft in service today, with fly-by-wire flight controls.
The A318, A319, A320 and A321 are twin-engine subsonic medium range aircraft.
The family offers a choice of engines
Student information management system project report ii.pdfKamal Acharya
Our project explains about the student management. This project mainly explains the various actions related to student details. This project shows some ease in adding, editing and deleting the student details. It also provides a less time consuming process for viewing, adding, editing and deleting the marks of the students.
Courier management system project report.pdfKamal Acharya
It is now-a-days very important for the people to send or receive articles like imported furniture, electronic items, gifts, business goods and the like. People depend vastly on different transport systems which mostly use the manual way of receiving and delivering the articles. There is no way to track the articles till they are received and there is no way to let the customer know what happened in transit, once he booked some articles. In such a situation, we need a system which completely computerizes the cargo activities including time to time tracking of the articles sent. This need is fulfilled by Courier Management System software which is online software for the cargo management people that enables them to receive the goods from a source and send them to a required destination and track their status from time to time.
CFD Simulation of By-pass Flow in a HRSG module by R&R Consult.pptxR&R Consult
CFD analysis is incredibly effective at solving mysteries and improving the performance of complex systems!
Here's a great example: At a large natural gas-fired power plant, where they use waste heat to generate steam and energy, they were puzzled that their boiler wasn't producing as much steam as expected.
R&R and Tetra Engineering Group Inc. were asked to solve the issue with reduced steam production.
An inspection had shown that a significant amount of hot flue gas was bypassing the boiler tubes, where the heat was supposed to be transferred.
R&R Consult conducted a CFD analysis, which revealed that 6.3% of the flue gas was bypassing the boiler tubes without transferring heat. The analysis also showed that the flue gas was instead being directed along the sides of the boiler and between the modules that were supposed to capture the heat. This was the cause of the reduced performance.
Based on our results, Tetra Engineering installed covering plates to reduce the bypass flow. This improved the boiler's performance and increased electricity production.
It is always satisfying when we can help solve complex challenges like this. Do your systems also need a check-up or optimization? Give us a call!
Work done in cooperation with James Malloy and David Moelling from Tetra Engineering.
More examples of our work https://www.r-r-consult.dk/en/cases-en/
Water scarcity is the lack of fresh water resources to meet the standard water demand. There are two type of water scarcity. One is physical. The other is economic water scarcity.
Role of Behavioural Finance in the Financial Market
1. International Journal of Business and Management Invention
ISSN (Online): 2319 – 8028, ISSN (Print): 2319 – 801X
www.ijbmi.org || Volume 5 Issue 1 || January. 2016 || PP-01-05
www.ijbmi.org 1 | Page
Role of Behavioural Finance in the Financial Market
Amlan Jyoti Sharma
Assistant Professor, Department of Commerce, Naharkatiya College, Naharkatia-786610, Dibrugarh, Assam,
INDIA.
Abstract: There are mainly two disciplines of financial market study viz. Conventional Finance and the recent
development known as Behavioural Finance. Conventional finance foundation is mainly based on efficient
market concept, Investor rationality concept and the modern portfolio theory developed by Markowitz. But till
1990 the conventional finance theories were not so been challenged. But from mid 90’s researchers have shows
many shortcomings of the existing theory and particularly challenged the investor rationality concept. As a
result a new paradigm known as behavioural finance has been developed. In this paper an attempt has been
made to highlight the shortcomings of the traditional finance theories as pointed out by behavioural finance
supporters and also a discussion on the significance of behavioural finance.
Key words: Traditional finance, Behavioural Finance, Rationality.
I. Introduction
Financial Markets are the place where Financial Instruments or the Financial Assets are traded.
Financial assets mainly directed towards the securities issued by companies or in other words they include
mainly the shares or stocks, debentures, bonds etc. The study of financial markets has always been a centre of
attraction of the researchers. Different stages or developments have resulted due to this curiosity of scholars.
Different theories were also developed in this regard. Basically these developments are classified into three
broad categories, viz. Traditional Finance theories, Modern Finance Theories and the latest addition is the
Behavioural Finance theories. In this paper an attempt has been made to throw some light in the development of
the Behavioural finance in spite of the presence of other theories and will also discuss a few behavioural finance
principles and their significance in the financial market study.
II. Statement of the Problem
Finance is the life blood of any business and in this competitive world the company requires more
capital to expand their activities. The growth of companies is also necessary for rapid industrialization and
economic growth of the country and which ultimately depends on the public .Shares are the most important
source of finance for a company. So to attract more and more investors towards securities market will not only
boost the economy of the individual companies but also contribute to the national development as a whole.
Therefore to study not only the ups and downs in the financial market but also the behaviour of its investors
which causes such ups and downs seems very effective for the growth of the financial market. That is why in
this paper an attempt has been made to describe the growth of latest finance discipline, i.e. behavioural finance.
III. Objectives of the Study
The main objective of the paper is to highlight the limitations of the traditional finance theories and the
significance of the growth of behavioural finance discipline in the study of investors’ behaviour in financial
market. A bird eye view of a few behavioural finance principles is also tried to be presented as the next
objective.
IV. Methodology of the Study:
The paper is mainly conceptual and descriptive in nature and it is based on the different research
papers, journals, articles related to behavioural finance available over internet based sources. Various other
related books and journals which are available in physical form are also accessed to develop the foundation of
the paper.
V. Literature Review
A wide range of studies available over internet based sources and also a few books and journals are
consulted to develop the foundation of the paper. The main development of the conventional finance is the
―Efficient Market Concept‖. As rightly pointed out, the efficient market hypothesis became one of the most
influential concepts of modern economics and a cornerstone of financial economics.
2. Role of Behavioural Finance in the Financial…
www.ijbmi.org 2 | Page
It was extended in many directions, and literally thousands of papers were written about it‖ [Alajbeg
Denis et al., 2012]. But in spite of being a central theory of finance it also has been criticized on many grounds.
―The Efficient Market Hypothesis is considered as the backbone of contemporary financial theory and has been
the dominant investing theory for more than 30 years (from the early 60s to the mid 90s). Needless to say, a
generation ago, it was the most widely accepted approach by academic financial economists‖ [Konstantinidis et
al., 2012].
The conventional or standard finance laid its foundation on two main models -- The efficient market concept
and the Markowitz model. But the investor decision making cannot solely be based on these two models. M.
Kannadhasan (2006) in his paper wrote that decision-making is a complex activity. Decisions can never be made
in a vacuum by relying on the personal resources and complex models, which do not take into consideration the
situation. The investor rationality concept has also been criticized by many scholars. Behavioural finance is a
new approach to financial markets that has emerged, at least in part, in response to the difficulties faced by the
traditional paradigm. In broad terms, it argues that some financial phenomena can be better understood using
models in which some agents are not fully rational [Nicholas Barberis & Richard Thaler, 2003].
In an report to identify the common investment mistakes and to provide insights into how investors make the
initial decision to invest and why some are reluctant to invest at all, Seth L. Elan(2010) stated that Active
Trading, More Attention to the Past Returns, Familiarity Bias, Momentum Investing, Under diversification, etc
are some of the common mistakes made by the investors and Financial illiteracy and the lack of trust in financial
markets play important roles in curbing participation in retirement plans.
Abhijeet Chandra and Ravinder Kumar in a study attempting to investigate the factors influencing individual
investor behaviour in Indian Stock Market found that there are five underlying psychological axes that appear to
be driving the Indian individual investor behaviour. These five pertinent axes on the basis of the underlying
variables are named as prudence and precautious attitude, conservatism, under confidence, informational
asymmetry, and financial addiction. The results reveal some psychological axes, such as conservatism and under
confidence, which are consistent with the prior literature to some extent; but there are some contrary behavioural
axes reported by the multivariate analysis such as prudence and precautious attitude and informational
asymmetry which are not yet considered in prior literature in growing economies, particularly in Indian context.
Thus there are many studies available some of which support the traditional fianance and some are against the
theory. Those critics have given birth to the new discipline named behavioural finance.
VI. Limitations of Conventional Finance
Many limitations of conventional finance are shown by different researchers. Some of them are specifically
tabulated below:
Concept of Rationality: Conventional finance lays its base first on the concept that investors are completely
rational. But this has been proved to be the main shortcoming of the theory by different empirical researches.
Rationality means the investors always make the best and proper use of the information they possess and
analyses them in an objective manner. But many studies[Paul Gerrans et al (2012); Ganesan Balaji (2013); Pal.
Mukul (2009) ; Ricciardi Victor et al (2000) ] have shown that in most of the times the investors being the social
beings, with a brain and a heart full of emotions, behave in an irrational way, in spite of having different
important information. They just overlook the rationality attitude and become biased in many cases.
Role of Emotions in Investment: Conventional finance completely ignores the role of emotions in investment
decision making. But the investors are also normal human beings with emotions and we cannot ignore the role
of emotion in any decision making including the field of investment.
Informational Accuracy: Conventional Finance always believes that the investors have access to all
information and stock prices reflect that information instantly. But in practice, this may not be possible always
because all the investors may not have access to all information at the same time. ―In the world of investing,
there is nearly an infinite amount to know and learn; and even the most successful investors don’t master all
disciplines‖ [Michael Pompian, 2006]
Role of Experience: According to conventional finance all investors are equally knowledgeable and expert. As
such no distinction has been made between an experienced and novice investor,. But in real it cannot be so. As
experience definitely makes the investors wiser and affects their decision making.
Demographic factors: Age, income, sex, family background, etc. are the demographic characteristics of
investors are not considered by conventional finance, but they are also having effects on investment decision
making abilities.
These are the main limitations of the traditional finance theories and which are proved to be true at different
situations under the purview of behavioural finance. Thus the behavioural finance discipline seems to be a good
development in the field of financial market study.
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VII. Growth of Behavioural Finance
To know the meaning of behavioural finance the famous quotation of Albert Einstein i.e."Only two things are
infinite, the universe and human stupidity, and I'm not sure about the former" seems to be much more relevant.
Really the human mind is the greatest and it is also the worst in some cases.1
History of the behavioural finance
goes back to Herbert A Simon, the Nobel lieutenant of 1978, for his paper in 1955 ―A behavioural model of
rational choice‖ may be regarded as the first thought that endeavored to state about a new concept called
behavioural finance [Simon, 1955].
However the systematic study of behavioural finance started actually from the work of Daniel Kahneman &
Amos Tversky (1973) where they for the first time discussed about the different heuristics affecting investment
decisions. They also founded the very famous Prospect Theory in Tversky & Kahneman (1979) where they
found that individuals will respond differently to equivalent situations depending on whether it is presented in
the context of losses or gains and found that individuals are much more distressed by prospective losses than
they are happy by equivalent gains. Statman Meir (2009), a professor from Santa Clara University wrote in an
article published in the Wall Street Journal that most investors were intelligent people, neither irrational nor
insane. But behavioural finance tells us we are also normal, with brains that are often full and emotions that are
often overflowing and that means we are normal smart at times, and normal stupid at others.
The late Peter L. Bernstein wrote in Against The Gods that the evidence "reveals repeated patterns of
irrationality, inconsistency, and incompetence in the ways human beings arrive at decisions and choices when
faced with uncertainty.2
Behavioural Finance is the field which studies the investors’ behaviour not only from the point of view of
rationality but also incorporating different other irrational psychological investment biases which are overlooked
by the conventional finance completely. This new field incorporated the theories of psychology, sociology and
also neurology in the study of investor behaviour.
It may be noted that the behavioural finance is itself is not a pure and original development. It is due to the
shortcomings of the efficient market hypothesis and other conventional finance developments that the growth of
behavioural finance is accelerated. As Subash Rahul (2012) pointed out in his thesis ― ―The science does not
try to label traditional financial theories as obsolete, but seeks to supplement the theories by relaxing on its
assumptions on rationality and taking into consideration the premise that human behaviour can be understood
better if the effects of cognitive and psychological biases could be studied in context where decisions are made.
VIII. Implications of Behavioural Finance principles
As stated under the traditional financial theory, the decisions makers are assumed to be rational. In contrast,
behavioural finance suggests that Investors financial decision-making are not driven only by the equilibrium
models and they often prove to be irrational while making investment decisions. In other words as per the
principles of behavioural finance human decisions are subject to several cognitive and emotional illusions. Some
of those illusions can be grouped as follows:
1. Cognitive Dissonance: It implies the mental discomfort felt by an investor while taking any decision
against his belief or attitude. ―Cognitive dissonance is nothing but a feeling of discomfort or
disharmony resulting from the contradiction with the set beliefs or attitudes.‖ [Sharma A.J.,2014 (1)]
In such a situation he tries to relieve his tension by following different irrational heuristics.
2. Herd Behaviour: Herd means a group and in financial market context it implies to follow a group in
respect of decision making. Many times investors knowingly or unknowingly reveals this type of
behaviour which is completely against the rationality concept. ―It is often seen that in many cases a
particular group forms and it goes in a particular direction. And when a new investor comes by his own
nature of being a human just follows the trend of the group without any consideration of his own values
or beliefs or analysis. He takes it for granted that when so many people are there in that direction, they
all must have something which is profitable as an investor.‖ [Sharma, A.J. ,2014 (2)].
3. Loss Aversion: Aversion means the feeling of dislike or disinclination and loss aversion means
disliking or feeling uncomfortable about a loss. This psychological feeling was first proposed by
Kahneman and Tversky (1979) in their famous prospect theory. Tversky (1991) further used this
concept in his study about making decisions under certainty. To date many scholars have studied the
effect of loss aversion on decision making under different situations.
1
Karz. Gary, CFA, “Psychology & Behavioral Finance‖ available at www.Investorhome.com
2
Ibid.
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4. Mental Accounting: Mental Accounting; a concept first named by Richard Thaler in an attempt to
describe the way in which a person subjectively frames a transaction in their mind the utility they
receive or expect. People weigh the money value on the basis of the source from which that income has
been generated. This is also a bias in investment decisions. Although having the same value, investors
place different weights on an income earned as interest and income from lottery.
There are many other such theories available in the field of behavioural finance which challenges the
conventional finance theories of rational choice.
IX. Does Behavioural Finance help Raising Finance in Securities Market?
Behavioural finance discipline has come to an existence as a result of the shortcomings researched out of the
efficient market theory. This development has highlighted different anomalies of securities market behaviour
which are overlooked by the traditional finance theories. But it is to be noted that both efficient market theory
and behavioural finance are related to investor behaviour, i.e. how the investors make decisions regarding
investment in securities market. These disciplines have never tried to show the ways of raising finance in
financial market. Rather we can say that if the biases put forwarded by the behavioural finance are given due
consideration by the investors while making investment decisions then their decisions would be more efficient
and this in turn will build their confidence about investment. This efficiency in investment decisions would also
reduce the bubbles and crisis situations in financial market as seen every now and then in the stock market. Such
bubbles and crisis vulnerabilities discourage the new investors to come out and invest. So if such situations are
controlled, which is possible by following the behavioural finance principles would definitely bring more
investors to the securities market. So although not directly but indirectly behavioural finance would definitely
help to raise finance in the financial market.
X. Conclusion
To conclude we can say that we must recognize the shortcomings of conventional finance put
forwarded by the empirical findings, and at the same time an objective analysis is necessitated to arrive at a
conclusion. The growth of behavioural finance in this regard is definitely a positive aspect to better study the
investor behaviour. However the behavioural finance alone cannot be said to be a perfect one because the
discipline is not too old to accept as a theory. And the behavioural finance is only a collection of ideas and
thoughts which are descriptive and advisory in nature but they are not exhaustive. More discussions and studies
are required to point the limitations of behavioural finance itself so as to refine it to be a good theory. Till then
we must admit that it is a theoretical framework, which is definitely a modest attempt and it has many positive
sides in the context of stock market study but it needs more refinement and more rigorous analysis to replace a
far impacted theory like EMH.[ Sharma A.J., 2015(3)].
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