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)

<p dir="ltr" style="text-align:left;"></p><p><span lang="en-us" xml:lang="en-us">Before&nbsp; the&nbsp; appearance&nbsp; of&nbsp; Behavioral&nbsp; Finance,&nbsp; Traditional Finance dominated the finance</span><span lang="en-us" xml:lang="en-us"> sector&nbsp; for&nbsp; several&nbsp; decades.&nbsp; According&nbsp; to&nbsp; its&nbsp; theorists,&nbsp; financial&nbsp; markets&nbsp; are&nbsp; stable&nbsp; and efficient. Investors are rational, who gather and take all the available information into account and their decisions are based on that data.</span></p> <p><span lang="en-us" xml:lang="en-us">In reality, however, this is not exactly the case, and human emotions play a significant role,</span><span lang="en-us" xml:lang="en-us"> requiring theories such as Behavioral Finance to emerge. This fairly recent theory argues that humans are irrational, subject to many biases, thus are very much prone to make irrational financial and investment decisions. Its goal is to explore the real behavior of investors, who are treated as ‘normal human beings.’ How does this affect investors and decision-making in real life?</span></p> <p><span lang="en-us" xml:lang="en-us">To be able to dive deeper into Behavioral Finance, we need to understand why it was able to</span><span lang="en-us" xml:lang="en-us"> claim its place in finance, therefore discussing Traditional Finance Theory and its limits is needed in the first part of the paper. Then the thesis will examine the different anomalies that occur in the market, as they disrupt the Efficient Market Hypothesis, and Standard Financial Theory&nbsp; is&nbsp; not&nbsp; able to provide an answer to them. Psychology drives most of the market anomalies, therefore studying the psychology of the participants will lead us closer to the explanation. That is where investor behavior and behavioral biases come into the picture. Investors’&nbsp; beliefs,&nbsp; past, and individual preferences all leave their mark on their behavior, furthermore, biases lead them to act irrationally.</span></p> <span lang="en-us" xml:lang="en-us">We differentiate between ‘mistakes of the brain’ and ‘mistakes of the heart.’ On one hand, the</span><span lang="en-us" xml:lang="en-us"> former refers to the process when humans misinterpret information from the world based on personal experience, which affects rationality and decisions. The latter, on the other hand, surfaces from personal feelings, and also influences decision-making and judgment. Can these biases be completely avoided? Probably not, but there are several methods available to help investors face them.<br></span><br><div> <p><span lang="en-us" xml:lang="en-us">Is there empirical evidence to support these statements? To answer the question, the paper will</span><span lang="en-us" xml:lang="en-us"> discuss a particular research on seasonality in the Hungarian stock exchange. </span><span lang="en-us" xml:lang="en-us"><br clear="all"> </span><span lang="en-us" xml:lang="en-us">Seasonality&nbsp; can&nbsp; have&nbsp; an&nbsp; influential&nbsp; impact&nbsp; on&nbsp; the&nbsp; investor's returns and portfolio. When</span><span lang="en-us" xml:lang="en-us"> present&nbsp; in&nbsp; a&nbsp; market&nbsp; it&nbsp; indicates&nbsp; an&nbsp; anomaly, assuming the market is predictable and not efficient. Several other examples, - however not described in detail in the thesis - confirm the presence of seasonality in stock markets.</span></p> <p><span lang="en-us" xml:lang="en-us">Like&nbsp; every&nbsp; theory,&nbsp; Behavioral&nbsp; Finance&nbsp; has&nbsp; its&nbsp; shortcomings&nbsp; and&nbsp; critics.&nbsp; Since&nbsp; it doesn’t</span><span lang="en-us" xml:lang="en-us"> provide an alternative to Traditional Finance, they complement each other rather than replace one another. The middle ground is offered by the Adaptive Markets Hypothesis.</span></p></div><br><p></p>

Intézmény

Budapesti Gazdasági Egyetem

Kar

Pénzügyi és Számviteli Kar

Tanszék

Pénzügy Tanszék

Tudományterület/tudományág

NEM RÉSZLETEZETT

Szak

Pénzügy és Számvitel

Konzulens(ek)

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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