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The Impact Of Behavioral Finance On Stock Markets

Author

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  • FELICIA RAMONA BIRĂU

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

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.

Suggested Citation

  • Felicia Ramona Birău, 2012. "The Impact Of Behavioral Finance On Stock Markets," Annals - Economy Series, Constantin Brancusi University, Faculty of Economics, vol. 3, pages 45-50, September.
  • Handle: RePEc:cbu:jrnlec:y:2012:v:3:p:45-50
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    References listed on IDEAS

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    2. Barberis, Nicholas & Thaler, Richard, 2003. "A survey of behavioral finance," Handbook of the Economics of Finance,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.
    3. Ross, Stephen A, 1987. "The Interrelations of Finance and Economics: Theoretical Perspectives," American Economic Review, American Economic Association, vol. 77(2), pages 29-34, May.
    4. Fama, Eugene F, 1970. "Efficient Capital Markets: A Review of Theory and Empirical Work," Journal of Finance, American Finance Association, vol. 25(2), pages 383-417, May.
    5. Houthakker, Hendrik S. & Williamson, Peter J., 1996. "The Economics of Financial Markets," OUP Catalogue, Oxford University Press, number 9780195044072.
    6. Jensen, Michael C., 1978. "Some anomalous evidence regarding market efficiency," Journal of Financial Economics, Elsevier, vol. 6(2-3), pages 95-101.
    7. Burton G. Malkiel, 2003. "The Efficient Market Hypothesis and Its Critics," Journal of Economic Perspectives, American Economic Association, vol. 17(1), pages 59-82, Winter.
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