INFLUENCE OF BEHAVIORAL FINANCE IN THE FINANCIAL MARKET

Abstract

Financial Market is considered as the life blood of any economic activity. There are different approaches while dealing with financial market. They are conventional finance, modern finance and a recent approach called behavioral finance. Conventional finance is based on the assumption that investors act rationally and the markets are perfect. They are of the opinion that they collect all the information from the market itself and their decisions are based on that data. Till 1990s, no challenges come across the line of conventional finance. But there was many shortcomings of the existing theory and from mid 1990’s researchers have challenged the investor rationality concept. As a result a new paradigm known as behavioral finance has been developed. Behavioral finance concept provides importance to the aspect of investors psychology. In this research paper, the researcher had attempted to highlight the shortcomings of traditional finance and suggest the significance of behavioral finance and also suggest the role of behavioral finance in financial market.