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Behavioral Finance

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  • Glaser, Markus

    () (Sonderforschungsbereich 504)

  • Nöth, Markus

    () (Lehrstuhl für ABWL, Finanzwirtschaft, insb. Bankbetriebslehre)

  • Weber, Martin

    () (Lehrstuhl für ABWL, Finanzwirtschaft, insb. Bankbetriebslehre)

Abstract

Behavioral finance as a subdiscipline of behavioral economics is finance incorporating findings from psychology and sociology into its theories. Behavioral finance models are usually developed to explain investor behavior or market anomalies when rational models provide no sufficient explanations. To understand the research agenda, methodology, and contributions, this survey reviews traditional finance theory first. Then, this survey shows how modifications (e.g. incorporating market frictions) can rationally explain observed individual or market behavior. In the second section, the survey will explain the behavioral finance research methodology -how biases are modeled, incorporated into traditional finance theories, and tested empirically and experimentally- using one specific subset of the behavioral finance literature, the overconfidence literature.

Suggested Citation

  • Glaser, Markus & Nöth, Markus & Weber, Martin, 2003. "Behavioral Finance," Sonderforschungsbereich 504 Publications 03-14, Sonderforschungsbereich 504, Universität Mannheim;Sonderforschungsbereich 504, University of Mannheim.
  • Handle: RePEc:xrs:sfbmaa:03-14
    Note: Financial support from the Deutsche Forschungsgemeinschaft, SFB 504, at the University of Mannheim, is gratefully acknowledged.
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    References listed on IDEAS

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    1. Refet S. Gürkaynak, 2008. "Econometric Tests Of Asset Price Bubbles: Taking Stock ," Journal of Economic Surveys, Wiley Blackwell, vol. 22(1), pages 166-186, February.
    2. Marina Nikiforow, 2010. "Does training on behavioural finance influence fund managers' perception and behaviour?," Applied Financial Economics, Taylor & Francis Journals, vol. 20(7), pages 515-528.
    3. Robert J. Shiller, 2007. "Understanding recent trends in house prices and homeownership," Proceedings - Economic Policy Symposium - Jackson Hole, Federal Reserve Bank of Kansas City, pages 89-123.
    4. Hui Guo, 2004. "A rational pricing explanation for the failure of CAPM," Review, Federal Reserve Bank of St. Louis, issue May, pages 23-34.
    5. Bruno S. Frey & Simon Luechinger & Alois Stutzer, 2007. "Calculating Tragedy: Assessing The Costs Of Terrorism," Journal of Economic Surveys, Wiley Blackwell, vol. 21(1), pages 1-24, February.
    6. Lutz G. Arnold, 2009. "Anything is Possible: On the Existence and Uniqueness of Equilibria in the Shleifer-Vishny Model of Limits of Arbitrage," Review of Finance, European Finance Association, vol. 13(3), pages 521-553.
    7. Eric Zitzewitz, 2014. "Retail Securities Regulation in the Aftermath of the Bubble," NBER Chapters,in: Economic Regulation and Its Reform: What Have We Learned?, pages 545-588 National Bureau of Economic Research, Inc.
    8. Alvaro Montenegro, 2006. "La información bursátil en Colombia," DOCUMENTOS DE ECONOMÍA 003031, UNIVERSIDAD JAVERIANA - BOGOTÁ.
    9. Gylfi Zoega, 2009. "Employment and Asset Prices," Birkbeck Working Papers in Economics and Finance 0917, Birkbeck, Department of Economics, Mathematics & Statistics.
    10. Schmeling, Maik, 2007. "Institutional and individual sentiment: Smart money and noise trader risk?," International Journal of Forecasting, Elsevier, vol. 23(1), pages 127-145.
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    12. Michailova, Julija, 2010. "Overconfidence, risk aversion and (economic) behavior of individual traders in experimental asset markets," MPRA Paper 26390, University Library of Munich, Germany.
    13. Jing Chen, 2005. "Information Theory and Market Behavior," Finance 0503009, EconWPA.
    14. Torben Lütje & Lukas Menkhoff, 2007. "What drives home bias? Evidence from fund managers' views," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 12(1), pages 21-35.
    15. Lukas Menkhoff & Ulrich Schmidt, 2005. "The use of trading strategies by fund managers: some first survey evidence," Applied Economics, Taylor & Francis Journals, vol. 37(15), pages 1719-1730.
    16. Ricardo Pinheiro Alves, 2008. "Behavioural Determinants Of Foreign Direct Investment," GEE Papers 0008, Gabinete de Estratégia e Estudos, Ministério da Economia, revised Dec 2008.
    17. James K. Self, 2006. "Asymmetric Stationarity in National Stock Market Indices: An MTAR Analysis," The Journal of Business, University of Chicago Press, vol. 79(6), pages 3153-3174, November.
    18. Brozynski, Torsten & Menkhoff, Lukas & Schmidt, Ulrich, 2003. "The Use of Momentum, Contrarian and Buy-&-Hold Strategies: Survey Evidence from Fund Managers," Hannover Economic Papers (HEP) dp-290, Leibniz Universität Hannover, Wirtschaftswissenschaftliche Fakultät.
    19. Peter S. Spiro, 2003. "Evidence on inflation expectations from Canadian real return bonds," Macroeconomics 0312004, University Library of Munich, Germany.
    20. Abbigail J. Chiodo & Massimo Guidolin & Michael T. Owyang & Makoto Shimoji, 2003. "Subjective probabilities: psychological evidence and economic applications," Working Papers 2003-009, Federal Reserve Bank of St. Louis.

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