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Behavioral finance: new research trends, socionomics and investor emotions

Author

Listed:
  • Adrian MITROI

    (Bucharest University of Economic Studies, Romania)

  • Alexandru OPROIU

    (Bucharest University of Economic Studies, Romania)

Abstract

The paper presents a critique of standard investment analysis, fundamental and technical, and develops an alternative more comprehensive approach that should include some of the tenets of behavioral finance. In the pursuit of understanding the behavior of the market player, the basic argument relies on the supposition that the risk appetite increases exactly at the worst moment - when the capacity to assume additional risk decreases significantly. People view a sample randomly drawn from a population as highly representative and quasi similar to the population in all its essential characteristics. They expect any two samples drawn from a particular population to be more similar to one another and to the population than is statistically justifiable. This behavior is different from the tenets of classic finance theory. The paper aims at demonstrating that investor psychological biases lead to investment performance to tilt to the mean in the long run and by following the trend, the financial market population does not enjoy significant sustainable benefits. As a reflection of the behavioral biases and influences, the statistical demonstration supports the conclusion that markets do not random walk.

Suggested Citation

  • Adrian MITROI & Alexandru OPROIU, 2014. "Behavioral finance: new research trends, socionomics and investor emotions," Theoretical and Applied Economics, Asociatia Generala a Economistilor din Romania / Editura Economica, vol. 0(4(593)), pages 153-166, April.
    • Handle: RePEc:agr:journl:v:xxi:y:2014:i:4(593):p:153-166
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    Citations

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    Cited by:

    1. Kun Chen & Xin Li & Peng Luo & J. Leon Zhao, 2021. "News-Induced Dynamic Networks for Market Signaling: Understanding the Impact of News on Firm Equity Value," Information Systems Research, INFORMS, vol. 32(2), pages 356-377, June.
    2. Fan, Lu & Chatterjee, Swarn, 2018. "Application of situational stimuli for examining the effectiveness of financial education: A behavioral finance perspective," Journal of Behavioral and Experimental Finance, Elsevier, vol. 17(C), pages 68-75.
    3. Zamri Ahmad & Haslindar Ibrahim & Jasman Tuyon, 2017. "Institutional investor behavioral biases: syntheses of theory and evidence," Management Research Review, Emerald Group Publishing Limited, vol. 40(5), pages 578-603, May.

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