Behavioral Finance
Limited Rationality in Financial Markets
Zusammenfassung
Over the last 50 years, neoclassical financial theory has been dominating our perception of what is happening in financial markets. It has spurred numerous valuable theories and concepts all based on the concept of Homo Economicus, the strictly rational economic man. However, humans do not always act in a strictly rational manner. For students and practitioners alike, our book aims at opening the door to another perspective on financial markets: a behavioral perspective based on a Homo Oeconomicus Humanus. This agent acts with limited rationality when making decisions. He/she uses heuristics and shortcuts and is prone to the influence of emotions. This sounds familiar in real life and can be transferred to what happens in financial markets, too.
Schlagworte
- Kapitel Ausklappen | EinklappenSeiten
- 1–4 Titelei/Inhaltsverzeichnis 1–4
- 5–6 Preface 3rd Edition 5–6
- 7–14 Dedication 7–14
- 15–20 Introduction 15–20
- 21–80 Section I − The Homo Economicus in the center of Traditional Finance 21–80
- 1 How Neoclassical Theory shaped rational economic behavior
- 1.1 From Traditional Finance to Emotional Finance
- 1.2 Classical theories of Traditional Finance
- 1.2.1 The rational economic market participant according to Smith
- 1.2.2 Random Walk Theory according to Bachelier
- 1.2.3 Expected Utility Theory according to von Neumann & Morgenstern
- 1.2.4 Information processing according to Bayes
- 1.2.5 Efficient Market Hypothesis according to Fama
- Summary Chapter 1
- 2 Limitations of Traditional Finance
- 2.1 Models of Neoclassical Capital Market Theory
- 2.1.1 Portfolio Selection Theory
- 2.1.2 Capital Asset Pricing Model (CAPM)
- 2.1.3 Arbitrage Pricing Theory as an alternative to CAPM
- 2.2 Valuation methods as a basis for financial decisions
- 2.2.1 Fundamental Analysis
- 2.2.2 Technical Analysis
- 2.3 Old vs. new reality ￢ﾀﾒ the Black Swan
- Summary Chapter 2
- Concluding remarks Section I
- 81–170 Section II Recurring speculative bubbles - triggered by the Homo Economicus Humanus 81–170
- 3 Investor behavior from the perspective of Behavioral Finance
- 3.1 Starting point and objective of Behavioral Finance
- 3.1.1 Evolving concept of rationality
- 3.1.2 Departure from the Expected Utility Theory ￢ﾀﾒ Bounded Rationality
- 3.2 Change of perspective within the framework of Behavioral Finance
- 3.2.1 Comparison of neoclassical and behavioral capital market theory
- 3.2.2 Research methods of Behavioral Finance
- 3.2.3 The investor in the course of time
- Summary Chapter 3
- 4 Speculative bubbles as a sign of market anomalies
- 4.1 Causes of speculative bubbles and their intensification
- 4.1.1 Herding
- 4.1.2 Limits of arbitrage
- 4.2 Anatomy of speculative bubbles according to Kindleberger & Minsky
- 4.3 Detailed review of bubbles and market anomalies
- 4.3.1 Significance of speculative bubbles for economies
- 4.3.2 Types of speculative bubbles
- 4.3.3 Types of capital market anomalies
- Summary Chapter 4
- 5 Speculative bubbles from the 17th to 21st century
- 5.1 Benoit Mandelbrot’s market characteristics
- 5.2 Examples of significant speculative bubbles
- 5.2.1 The Tulip Mania of 1636
- 5.2.2 The Mississippi bubble of 1716
- 5.2.3 The stock market boom and crash of 1929
- 5.2.4 The dot-com speculative bubble of the late 1990s
- 5.2.5 The U.S. real-estate credit bubble between 2001 and 2006
- 5.2.6 Speculative bubbles after the U.S. mortgage crisis
- 5.3 Indications of speculative bubbles in Private Equity
- Summary Chapter 5
- Concluding remarks Section II
- 171–266 Section III – The Homo Economicus Humanus within the information and decision-making process 171–266
- 6 Information and Decision-Making Process
- 6.1 Phases of the information and decision-making process
- 6.1.1 Information perception
- 6.1.2 Information Processing/Evaluation
- 6.1.3 Investment Decision
- 6.2 Basis of decision-making from the perspective of Behavioral Finance
- 6.2.1 Decision-making based on Prospect Theory
- 6.2.2 Features of the valuation functions
- 6.2.3 Valuation of securities based on the Prospect Theory
- Summary Chapter 6
- 7 Limited rationality during information perception
- 7.1 Heuristics of cognitive origin
- 7.1.1 Misperception of probabilities
- 7.1.2 Misinterpretation of information
- 7.2 Heuristics of emotional origin
- 7.3 Assessment of the risk/return-harmfulness of reviewed heuristics
- Summary Chapter 7
- 8 Limited rationality during information processing
- 8.1 Heuristics of cognitive origin
- 8.1.1 Misperception of probabilities
- 8.1.2 Misperception of information
- 8.1.3 Misperception of objective reality
- 8.1.4 Misperception of one’s own abilities
- 8.2 Heuristics of emotional origin
- 8.3 Assessment of the risk/return-harmfulness of the heuristics considered
- Summary Chapter 8
- 9 Limited rationality during decision-making
- 9.1 Heuristics of cognitive origin
- 9.1.1 Misperception of objective reality
- 9.1.2 Misperception of own abilities
- 9.2 Heuristics of emotional origin
- 9.2.1 Misperception of objective reality
- 9.2.2 Misperception of one’s own abilities
- 9.3 Assessment of the risk-/return-harmfulness of the considered heuristics
- 9.4 Overview of the heuristics considered in the information and decisionmaking process
- Summary Chapter 9
- Concluding remarks Section III
- 267–360 Section IV – Applications of Behavioral Finance and Recent Developments 267–360
- 10 Applications of Behavioral Finance in Wealth Management
- 10.1 Overview of limited rational behavior in investment advice
- 10.2 Dealing with heuristics in investment advice
- 10.2.1 Applied heuristics during information perception
- 10.2.2 Applied heuristics during information processing
- 10.2.3 Applied heuristics during decision-making
- Summary Chapter 10
- 11 Application of Behavioral Finance in corporate governance
- 11.1 Overconfidence in entrepreneurial investment decisions
- 11.2 Dividend policy from the perspective of Behavioral Finance
- 11.3 Initial Public Offerings from the perspective of Behavioral Finance
- 11.4 Corporate Governance from the perspective of Behavioral Finance
- 11.5 Equity Premium Puzzle
- Summary Chapter 11
- 12 Financial Nudging ￢ﾀﾒ behavioral approaches for better financial decisions
- 12.1 Libertarian Paternalism
- 12.1.1 Choice architecture
- 12.1.2 Freedom of choice and paternalism
- 12.1.3 Types and characteristics of nudging
- 12.1.4 Criticism of libertarian paternalism
- 12.2 Financial nudging approaches
- 12.2.1 Behavioral science foundations of financial nudging
- 12.2.2 Personal Loans
- 12.2.3 Credit Cards
- 12.2.4 Mortgages
- 12.2.5 Pension provisions
- 12.2.6 Shares and bonds
- Summary Chapter 12
- 13 Further development of Behavioral Finance ￢ﾀﾒ a look into the future
- 13.1 Limits of Behavioral Finance
- 13.2 Emergence of Neurofinance/Neuroeconomics
- 13.2.1 Research on the human brain
- 13.2.2 Decision processes from the perspective of Neurofinance
- 13.3 Origin of Emotional Finance
- 13.3.1 Emotions as a basis for investment decisions
- 13.3.2 Interpretation of market movements from an Emotional Finance perspective
- Summary Chapter 13
- Concluding remarks Section IV
- 361–372 Glossary 361–372
- 373–400 Literature 373–400
- Books
- Journals and Essays
- Websites
- Biographies
- 401–403 Index 401–403
