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The Impact Of Behavioral Finance On Stock Markets

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  • FELICIA RAMONA BIRĂU

    (UNIVERSITY OF CRAIOVA, FACULTY OF ECONOMICS AND BUSINESS ADMINISTRATION)

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    Abstract

    This article presents a new approach in the analysis of capital markets, namely behavioral finance. Behavioral finance is the study of the influence of the psychological factors on financial markets evolution. Financial investors are people with a very varied number of deviations from rational behaviour, which is the reason why there is a variety of effects, which explain market anomalies. Classical finance assumes that investors are rational and they are focused to select an efficient portfolio, which means including a combination of asset classes chosen in such a manner as to achieve the greatest possible returns over the long term, under the terms of a tolerable level of risk. Behavioral finance paradigm suggests that investment decision is influenced in a large proportion by psychological and emotional factors.

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    Bibliographic Info

    Article provided by Constantin Brancusi University, Faculty of Economics in its journal Constatin Brancusi University of Targu Jiu Annals - Economy Series.

    Volume (Year): 3 (2012)
    Issue (Month): (September)
    Pages: 45-50

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    Handle: RePEc:cbu:jrnlec:y:2012:v:3:p:45-50

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    Related research

    Keywords: behavioral finance; classical finance; market efficiency; investment decision; psychological factors; capital market; rational behavior;

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    1. Barberis, Nicholas & Thaler, Richard, 2003. "A survey of behavioral finance," Handbook of the Economics of Finance, Elsevier, in: G.M. Constantinides & M. Harris & R. M. Stulz (ed.), Handbook of the Economics of Finance, edition 1, volume 1, chapter 18, pages 1053-1128 Elsevier.
    2. Ross, Stephen A, 1987. "The Interrelations of Finance and Economics: Theoretical Perspectives," American Economic Review, American Economic Association, American Economic Association, vol. 77(2), pages 29-34, May.
    3. Fama, Eugene F, 1970. "Efficient Capital Markets: A Review of Theory and Empirical Work," Journal of Finance, American Finance Association, American Finance Association, vol. 25(2), pages 383-417, May.
    4. Houthakker, Hendrik S. & Williamson, Peter J., 1996. "The Economics of Financial Markets," OUP Catalogue, Oxford University Press, Oxford University Press, number 9780195044072, October.
    5. Jensen, Michael C., 1978. "Some anomalous evidence regarding market efficiency," Journal of Financial Economics, Elsevier, Elsevier, vol. 6(2-3), pages 95-101.
    6. Granger, Clive & Timmermann, Allan G, 2002. "Efficient Market Hypothesis and Forecasting," CEPR Discussion Papers, C.E.P.R. Discussion Papers 3593, C.E.P.R. Discussion Papers.
    7. Burton G. Malkiel, 2003. "The Efficient Market Hypothesis and Its Critics," Journal of Economic Perspectives, American Economic Association, American Economic Association, vol. 17(1), pages 59-82, Winter.
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