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Explaining Stock Market Crashes: A Behavioral Finance Approach

In: Applied Asset and Risk Management

Author

Listed:
  • Marcus Schulmerich

    (State Street Global Advisors (SSgA))

  • Yves-Michel Leporcher

    (Crédit Agricole)

  • Ching-Hwa Eu

    (Deutsche Bank)

Abstract

This chapter is devoted to behavioral finance. It sketches the historical development of this field of research which focuses on the impact of behavioral biases on investment decisions. Key bi ases which are relevant for stock market crashes are introduced: availability bias, representativeness bias, herding bias, overoptimism bias, overconfidence bias, anchoring bias and prospect theory. The chapter ends with using these biases for explaining the October 1987 crash.

Suggested Citation

  • Marcus Schulmerich & Yves-Michel Leporcher & Ching-Hwa Eu, 2015. "Explaining Stock Market Crashes: A Behavioral Finance Approach," Management for Professionals, in: Applied Asset and Risk Management, edition 127, chapter 5, pages 355-413, Springer.
    • Handle: RePEc:spr:mgmchp:978-3-642-55444-5_5
    DOI: 10.1007/978-3-642-55444-5_5
    as

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