Behavioral finance: an overview, and introduction to the Behavioral Finance Theory and how its biases affect investors and decision-making

Pádár Luca (2023) Behavioral finance: an overview, and introduction to the Behavioral Finance Theory and how its biases affect investors and decision-making. Pénzügyi és Számviteli Kar.

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Absztrakt (kivonat)

Before theappearance of BehavioralFinance, Traditional Financedominated the financesector for several decades. According to its theorists, financial markets are stable and efficient. Investorsare rational, who gather andtake all the available information into accountand their decisions are based on that data.In reality, however, this is not exactly the case, and human emotionsplay a significant role,requiring theories such as Behavioral Finance to emerge.This fairly recent theory argues thathumans are irrational, subject to many biases, thus are very much prone to make irrational financial and investment decisions. Its goal is to explorethe real behavior of investors, who are treated as ‘normal human beings.’ How does this affect investorsand decision-making in real life?To be able to dive deeperinto Behavioral Finance,we need to understand why itwas able to claim its place in finance,therefore discussing Traditional Finance Theory and its limitsis needed in the first part of the paper. Then the thesis will examine the differentanomalies that occur in the market, as they disruptthe Efficient MarketHypothesis, and StandardFinancial Theory is notable to provide an answerto them. Psychology drives most of the market anomalies, thereforestudying the psychology of the participants will lead us closer to the explanation. That is where investor behaviorand behavioral biasescome into the picture. Investors’ beliefs,past, and individual preferences all leave their mark on their behavior, furthermore,biases lead them to act irrationally.We differentiate between‘mistakes of the brain’ and‘mistakes of the heart.’ On one hand, the former refers to the processwhen humans misinterpret information from the world based on personal experience, which affects rationality and decisions. The latter, on the other hand, surfacesfrom personal feelings, and also influences decision-making and judgment. Can these biases be completely avoided?Probably not, but there are several methodsavailable to helpinvestors face them.Is there empirical evidence to support these statements? To answerthe question, the paper willdiscuss a particular research on seasonality in theHungarian stock exchange. Seasonality can havean influential impacton the investor'sreturns and portfolio. Whenpresentin a marketit indicates ananomaly, assuming the market is predictable and not efficient. Severalother examples, - howevernot described in detail in the thesis - confirm the presenceof seasonality in stock markets.Like everytheory, Behavioral Financehas its shortcomingsand critics. Sinceit doesn’t provide an alternative to Traditional Finance,they complement each otherrather than replace one another. The middle ground is offered by the AdaptiveMarkets Hypothesis.

Intézmény

Budapesti Gazdasági Egyetem

Kar

Pénzügyi és Számviteli Kar

Tanszék

Pénzügy Tanszék

Tudományterület/tudományág

NEM RÉSZLETEZETT

Szak

Pénzügy és Számvitel

Mű típusa:	diplomadolgozat (NEM RÉSZLETEZETT)
Kulcsszavak:	befektetési döntések, befektetői magatartás, behaviorizmus, pénzügy, pénzügyi befektetés, viselkedés
SWORD Depositor:	Archive User
Felhasználói azonosító szám (ID):	Archive User
Rekord készítés dátuma:	2024. Jan. 24. 15:47
Utolsó módosítás:	2024. Jan. 24. 15:47

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