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The Global Financial Crisis from the perspective of Behavioral Finance

Author

Listed:
  • Teodor Sedlarski

    (Faculty of Economics and Business Administration, Sofia University St Kliment Ohridski)

  • Gergana Dimitrova

Abstract

In this article we analyze the causes and the specific development of the global financial and economic crises from 2007 – 2008 using concepts from the emerging field of behavior finance. Explanation of the failure of financial markets is sought, on the basis of prospect theory, in cognitive biases and errors studied in behavioral research. Evidence refuting the postulates of the efficient market hypothesis is summarized to substantiate the need of a more realistic theory grounded in predictable patterns of ‘bounded rational’ market behavior.

Suggested Citation

  • Teodor Sedlarski & Gergana Dimitrova, 2016. "The Global Financial Crisis from the perspective of Behavioral Finance," Yearbook of the Faculty of Economics and Business Administration, Sofia University, Faculty of Economics and Business Administration, Sofia University St Kliment Ohridski - Bulgaria, vol. 13(1), pages 247-268, September.
    • Handle: RePEc:sko:yrbook:v:13:y:2016:i:1:p:247-268
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    More about this item

    Keywords

    prospect theory; behavioral finance; global financial crisis; cognitive bias; efficient market hypothesis.;
    All these keywords.

    JEL classification:

    • G01 - Financial Economics - - General - - - Financial Crises
    • G02 - Financial Economics - - General - - - Behavioral Finance: Underlying Principles
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading

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