Behavioural Finance and Market Anomalies (P03091)

? Credit Points : 10 ? SCQF Level : 11 ? Acronym : SBE-P-BFMA

This elective is designed to provide an overview of an exciting new area in finance which takes as its premise that investment decision–making and investor behaviour are not necessarily driven by “rational” considerations but by aspects of personal and market psychology. Behavioural finance recognises that our abilities to make complex investment decisions are limited, and that we can improve our performance as investors and fund managers by recognising the biases and errors of judgment to which all of us are prone.

The elective discusses what we know about the psychology of financial decision-making and explores the behaviour of both individual investors and finance professionals. Are markets really “efficient”? How can we explain the existence of market anomalies?

Syllabus

Is our decision making biased? What is behavioural finance?
Formal overview of investor psychology part 1: heuristic driven biases
Formal overview of investor psychology part 2: other judgement biases
Overconfidence and investor performance: “the courage of misguided convictions”
Selling winners too early and riding losers too long
Market under reaction to bad news
Emotional Finance
Introduction to market anomalies
Value puzzle
Momentum paradox
Post earnings announcement drift
Market mispricing and corporate decision (Takeovers, IPO/SEO)
Behavioural finance versus market efficiency

Entry Requirements

none

Subject Areas

Home subject area

Business Studies, (School of Business and Economics, Schedule H)

Delivery Information

? Normal year taken : Postgraduate

? Delivery Period : Semester 2 (Blocks 3-4)

? Contact Teaching Time : 2 hour(s) per week for 10 weeks

All of the following classes

Type	Day	Start	End	Area
Lecture	Tuesday	09:00	10:50	Central

Summary of Intended Learning Outcomes

This course is designed to introduce students to the basic principles of behavioural finance and its implications for investors in international capital markets, analysts and other market participants. On successfully completing the elective you will:

Understand the differences between a behavioural finance perspective and a traditional finance perspective
Be up to speed with important developments in this new area and the associated practical insights they provide
Recognise your own decision errors and understand the reasons for these so you can avoid future decision errors
Understand how, by appreciating the cognitive biases to which you are prone, you can become a better investor or financial manager
Have a deeper understanding of the market efficiency debate and recent developments
Be in a position to exploit market anomalies appropriately
Develop the ability to appraise critically some of the less well-founded claims made by behavioural finance proponents and reconcile the teachings of behavioural finance with traditional views of market efficiency

Assessment Information

Assessment will be via a two-hour examination at the end of semester two (70% of the final mark) and an assignment(3000 words) during the semester (30% of the final mark).