Top Research Papers on Behavioral Finance

Conventional and modern finance is related to various theories and concepts that has done respectable job in financial market in providing guidance for strategic financial decisions. Among all, emerging behavior finance has come up with psychological and sociological issues that affects the financial choices and are often ignored by modernized financial theories. This paper will elaborate the concept of behavior finance and its relation with Efficient Market Hypothesis. The paper helps us to known that the loopholes in EMH gave birth to behavior finance but due to lack of clarity of its usage ...

This article discusses the analysis of the foreign literature representatives’ theoretical approaches towards studying the financial behavior and behavioral finance. The purpose of this work is to develop ideas about financial behavior, as well as to identify the similarities and differences between aspects of financial behavior and behavioral finance. The topicality of the article takes place in the insufficient elaboration of theoretical aspects of financial behavior, when in the contemporary conditions, the researchers outside of Russia started studying the concept of financial behavior and...

Introduction. At the end of the 20th century in the arsenal of traditional economic theory, there were not enough means by which it was possible to explain the not always rational behavior of economic subjects, which prompted the emergence of the concept of behavioral finance as a new direction of financial education. The subject of research of this concept was primarily the impact of emotional, cultural, psychological, social and other factors on the making of financial decisions by household members. Therefore, the use of the findings of the concept of behavioral finance in modern scientific...

The theory of financial behavior of the population has become very popular in recent years and set a new trend in financial science that explores why individuals make irrational financial decisions and how their psychology, namely stereotypical thinking, emotions, cognitive biases, and personal char-acteristics affect personal financial resources.Irrational behavior is especially pronounced in situations of uncertainty and risk, which are cur-rently affecting all domestic economic, investment, and financial activities due to the full-scale war.Studying the financial behavior of households, inc...

We evaluate Eugene Fama’s claim that stock prices do not exhibit price bubbles. Based on US industry returns 1926-2014 and international sector returns 1985-2014, we present four findings: (1) Fama is correct in that a sharp price increase of an industry portfolio does not, on average, predict unusually low returns going forward; (2) such sharp price increases predict a substantially heightened probability of a crash; (3) attributes of the price run-up, including volatility, turnover, issuance, and the price path of the run-up can all help forecast an eventual crash and future returns; and (4)...

Financial market is complex and heterogeneity is focused by financial academy, on which be- havioral finance theory has great impact. Based on subjective complexity and limited rationality, behavioral finance theory introduces psychology and sociology, analyzes cognitive bias of investors, and makes inves- tors behavior models. This paper analyzes and evaluates financial complexity, micro foundations of behav- ioral finance, and theoretical models.

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...

Using academic studies and financial literature from over 40 researchers, I investigate if behavioral finance causes investors to not always act in a rational manner. In this thesis, I review the literature on investor behavior and outline the situational factors that contribute to investment decisions that are not consistent with the theory of rational expectations. In particular, I synthesize the departure from the theoretical standard due to gender bias, risk-taking, over confidence based on gender as well as institutional compared to individual investors, investor biases, external environm...

The paper aims to study the growth and evolution of finance, as well as how the evolution of  finance theories aids investors in decision-making. The traditional finance model's perfect  mobility and rationality fail to predict the economic events, dot-com bubble, and the European debt crisis. These economic disasters provide the foundation for the development of behavioral finance. Psychology and finance are merged into behavioral finance. It defies the traditional  financial premise. The field provides unique insights into financial and investment decision making models. Behavioral finance a...

This project is to gather empirical data on the topic to gain a better understanding of how financial technology, or Fintech, affects the financial behavior of micro, small, and medium-sized firms (MSMEs). 110 MSMEs spread over West Jakarta made up the sample in 2023. As part of the data gathering method, a random sample questionnaire with a 5-point Likert scale was created using the online tool Google Forms. The Structural Equation Modeling (SEM) model was applied to the data using Partial Least Squares (PLS) software. The results of the study show that financial inclusion and financial techn...

This paper examines herd behavior in Pakistan stock market using data from the Pakistan Stock Exchange. We test for the presence of herding as suggested by Hwang and Salmon (2004) Model. Results based on monthly data indicate the existence of herd behavior for the years 2013-2018. Evidence of little herd behavior is found during the whole period except in the last months of December, 2012 where more herding practices are being observed in Pakistan Stock Exchange. While investigating the herd behavior using sector wise data, we found that cement industry shows more herding as compared to others...

This paper examines the individual investment preferences and discusses the different factors of behavioral finance which are related to investment influence in developing countries like, Pakistan. Introduction simply discuss difference between traditional and behavioral finance literature consists on different factors of behavioral finance and traditional finance. Third portion consists on impact of both traditional and behavioral finance on investment the fourth sections discusses the comparison of different research results and at the last part contained the conclusion.

The results of this research show that digital finance and financial literacy positively affect the MSMEs financial behavior, however, managerial biases does not affect the MSMEs financial behavior.

: This research aims to find empirical evidence of influence digital finance, managerial biases, and financial literacy on the MSMEs financial behavior. The population of this research is all MSMEs in DKI Jakarta. The sample used in this research was 200 respondents (MSME owners) from all 210 MSMEs who were willing to become respondents. Sampling was carried out using random techniques. Data collection was carried out by manually and online distributing questionnaires using Google Forms, and measured using a 5-point Likert scale. Data processing was carried out using Partial Least Square (PLS)...

The efficient market hypothesis stated that investors act rationally but in this paper will show that investors act irrationally in decision making. This matter can be seen from the decision making of investors affected by some psychological factors. therefore, this paper concluded that there will be no market efficiency.

Introduction. The article analyzes the differences between traditional finance and behavioral finance. The basic tools of micro-behavioral finance are highlighted, the influence of behavioral finance on ensuring the effective result of the activity of economic relations is determined. The necessity of further study of behavioral finance in modern financial science is substantiated. It describes how behavioral finance is intended to explain the behavior of economic relations in financial market decision-making, as well as how the behavioral approach is sufficiently manifested in predicting the ...

List of Symbols. Preface. 1 Introduction. 1.1 Objectives of this book. 1.2 Structure of this book. 1.3 Research methodology. 2 Definitions and Characteristics of Rumors. 2.1 Definitions. 2.2 Historical background to studies on rumors. 3 Rumors and the Theory of Finance. 3.1 Rumors and Behavioral Finance. 3.2 Rumors and rational behavior. 3.3 Empirical studies of rumors in the stock market. 3.4 Review of models on rumors. 3.5 Ethnographical studies. 4 Legal Aspects of Rumors in Financial Markets. 4.1 Rumors in financial markets and insider trading. 4.2 Review of models on insider trading. 4.3 R...

Behavioral Finance is a theory which has increasingly boomed since 1980s and tried to explain the actual behaviour in financial market. The development of behavioral financial theory has given rise to a revolution in contenporary finance. Athough the development of this theory has not formed an integrate theoretical system up to now, it has at least made an active try in three aspects including the change of paradigm , theoretical creation and method innovation in order to push forward the development of finance theory.

ABSTRACT Financial economists writing about financial advertising often describe them as fluff at best and misleading or fraudulent at worst. This description typifies the first generation of behavioral finance that described people as irrational, misled by ads into cognitive and emotional errors. The second generation of behavioral finance describes people as normal. It acknowledges the full range of people's normal wants and distinguishes wants from errors. Some financial ads exploit errors, whereas others cater to wants. Our wants include the utilitarian, expressive, and emotional benefits ...

In this paper, we present behavioral corporate finance. Unlike the dominant theory of modern corporate finance, behavioral corporate finance allows situations in which investors are not entirely rational. Behavioral corporate finance also allows corporate financial managers to have nonstandard preferences, to make biased decisions, and even, occasionally to be irrational. All those irrationalities might have a significant impact on the corporate objective function, corporate financial and investment policy as well as to system of corporate governance.

This paper highlights the disproportionate effect of behavioral finance on investor’s investing decisions. While making any financial decisions, one easily gets influenced by psychological and emotional factors. Past individual experiences, tendency or opportunity for herd behavior, personal judgment, overconfidence in one's abilities, aversion to feelings of regret, reliance on advice from experts, and last but not least, something known as the disposition effect—by which investors tend to hold on to losing investments and professionally sell profitable ones too early. The impact of these fac...

This paper offers a detailed analysis of the evolution of financial decision-making theories, focusing on the shift from classical finance to behavioral finance. Classical finance theories, including the Efficient Market Hypothesis and Modern Portfolio Theory, assume that investors behave rationally and that the market is efficient. However, these theories have faced criticisms highlighting the importance of considering irrational behaviors in financial markets. Behavioral finance addresses this gap by integrating psychological insights into financial decision-making. This study systematically...

This study aims to determine the effect of financial literacy and financial behavior on financial distress students of the Faculty of Economics, State Islamic University of Malang. The type of research used is quantitative research. The research location appointed by the researcher is at the State Islamic University (UIN) Maulana Malik Ibrahim Malang. The number of samples in this study were 130 respondents. The sample in this study was Generation Z who were born in 1996 – 2004 or who are 18-26 years old and actively hold the status of students of the Faculty of Economics, State Islamic Univer...

: This paper explores the intersection of Traditional Finance and Behavioral Finance to understand the dynamics of financial decision-making. Traditional finance has long been grounded in the assumption of rationality among investors and market efficiency, guiding principles such as the Efficient Market Hypothesis (EMH) and the Capital Asset Pricing Model (CAPM). However, empirical evidence often shows deviations from these rational behaviors, suggesting that psychological biases significantly influence investor decisions. Behavioral finance addresses these anomalies by incorporating psycholog...

This article analyzes 31 mutual funds whose portfolio construction methodologies employ aspects of behavioral finance. The assets of the mutual funds in the study were valued at approximately US$ 16 billion as of August 2009. Major findings of the authors include the following. First, evidence exists of a strong seasonality effect among behavioral funds. Second, behavioral fund managers exhibit an inability to predict equity market reversals due, in large part, to their willingness to attempt to benefit from trend momentum. Third, they have superior performance during bull market periods vis-a...

This study aims to examine the relationship between financial literacy and financial behavior of the lifestyle of the student and determine differences in financial literacy, lifestyle and behavior of student finance and business economics faculty. This research is quantitative data collection techniques using questionnaires. Sample used were 100 students consisting of students of the faculty of economics and business Muhammadiyah University of North Sumatra, this study uses judgment sampling. Data were analyzed using classical assumption test, multiple linear regression, t test, F test, and t...

: Behavioral finance has flourished as a prominent discipline, with mainstream economics increasingly turning to the study of individual behavior and increasing empirical evidence suggesting that existing financial theories have some fundamental flaws. Securities investment is a kind of risky investment. In order to gain as much income as possible and reduce the possible risks to the minimum, investors should form analysis and prediction opinions on the trend of securities prices according to various information collected and sorted out. Then form a set of fixed and operable investment methods...

This chapter investigates the thesis in Turkey written in the field of behavioral finance. An important objective is to guide the relevant researchers who are missing in the fields in the literature. For this purpose, 60 theses written so far have been examined with bibliometric analysis method. The period range of these theses is 2003-2018. When Daniel Kahneman won the Nobel Prize in 2002, behavioral finance, which started to attract attention in our country, started to gain momentum especially in times of crisis when unexplained behaviors were explained by the concept of rational people. In ...

This paper studies the effect of financing constraints and financial development on the enterprise export behavior using the World Bank investment climate survey data.The results show that financing constraints and financial development are the important factors that affect the enterprise export probability and export earnings.Furthermore,the authors find that the impact of financing constraints and financial development on export probability and export earnings exists differences due to different ownership,private enterprise financing constraints reduce to the probability of enterprise export...

Traditional finance theory tends to ignore effects of emotions as it assumes that people always behave rationally. Emerging empirical research in behavioral finance shows that feelings do play a role in investor decision making and that individual psychology affects subsequent asset pricing. This paper examines the role of emotions in decision making of economic agents while distinguishing between two sides of debate among researches: the first, analyzing enhancing role of emotions in investment decisions and the second, arguing that emotions detract good investments. Using a qualitative, expl...

The modern Corporate finance theories based on the corporate pricing under the assumption of EMH, are developing from the rational analysis structure of the modern financial theories. But so far the modern financial theories have always ignored the research of people's psychological activities and behavioral modes, causing the great departure between theory and practice. This essay gives a new way to understand the investing and financing management in the newly hos scope of behavioral finance, giving the new analy-zing methods, such as Participatory Model of Management and Optional Assess of ...

The behavioral finance revolution in academic finance in the last several decades is best described as a return to a more eclectic approach to financial modeling. The earlier neoclassical finance revolution that had swept the finance profession in the 1960s and 1970s represented the overly-enthusiastic pursuit of only one model. Freed from the tyranny of just one model, financial research is now making faster progress, and that progress can be expected to show material benefits. An example of the application of both behavioral finance and neoclassical finance is discussed: the reform of Social...

Can we think of the stock market as a person? It has moods, it can be ornery or lively, and it can overreact one day and under react on next day, and so on. There is growing field of Behavioral finance which involves study of moods of market. It assumes that investors are not as rational as traditional theory has assumed, but their psychology and biases in their decision-making impact stock prices. Behavioral finance studies psychological theory with conventional eco- nomics and finance and provides explanations about why people make irrational financial decisions. At times people behave irrat...

As the tsunami,the financial crisis which is caused by the U.S.subprime mortgage crisis sweeps across the global financial markets.The modern financial model,which takes the traditional finance theory as its concept,must be blamed.As the challenges turn up in the traditional finance,its related theory of conception on the financial crisis lost its powerful persuasive once owned.Therefore,from the perspective of the behavior finance,this paper attempts to analyze the cause of the financial crisis and find out the reason that it spreads so quickly all over the markets,even causing the world econ...

The SME sector experienced a decline in financial performance during the pandemic. In addition, there are changes in SME owners' financial behavior, which impact financial decision-making. The financial behavior of SME owners can be seen in risk attitudes, mental accounting, and overconfidence. This study explores the relationship between risk attitudes, mental accounting, and overconfidence in investment and financing decisions. This study took the population of UKM owners in Banyumas Regency, Central Java Province, Indonesia.. The sample used in the study amounted to 116 SME owners. The resu...

In this article we analyze the causes and the specific development of the global financial and economic crises from 2007 – 2008 using concepts from the emerging field of behavior finance. Explanation of the failure of financial markets is sought, on the basis of prospect theory, in cognitive biases and errors studied in behavioral research. Evidence refuting the postulates of the efficient market hypothesis is summarized to substantiate the need of a more realistic theory grounded in predictable patterns of ‘bounded rational’ market behavior.

. This paper explores the profound impact of investor behavior, driven by cognitive biases such as loss aversion, the framing effect, and the endowment effect, on financial markets. The presence of these biases introduces market anomalies and long-term reversals, challenging the efficiency of the market. While valuable insights are gained from studying investor behavior, limitations must be considered. Individual variations in psychological traits and decision-making processes may render these theories inapplicable to all investors. Historical data, a primary tool for analyzing behavior, may n...

Financial agglomeration is the transfer and concentration of financial resources in space , this transfer and concentration can make the zone enterprises obtain financing at lower cost, particularly financial agglomeration can reduce the enterprise financing cost, time cost, and unstable financial risk cost ; then this paper uses the listing Corporation and the various provinces and cities in 2011 which issued A shares of the financial as the sample data, starting from the financial agglomeration effect on the enterprises' financing behavior as the point of empirical analysis, the results show...

The article discusses behavioural finance theories in households' decision-making process. Classical finance theories based on financial markets' rational behaviour assumption are analysed, the subjective factors influenced on households' decision-making were identified. Behavioural theories and behavioural anomalies in the decision-making process are classified; the opportunities of their application in the financial market are described. Behavioural finance theories' influence on the households' financial decisions were researched to allocate investors' types based on their behavioural chara...

Managers' information disclosure to firm's outsiders plays an essential role for mitigating information asymmetry and agency problems. The main objective of this thesis is to analyze the managers' reporting incentives in a broader context, while considering the preferences of behavioural investors and the active role of financial analysts as target setters in particular. Further, this thesis aims to study the optimal disclosure policy of different firms in the form of guidance and to analyze its influence on the efficiency of analysts’ earnings forecasts. Overall, this thesis contributes to t...

People tend to be penny wise and pound foolish and cry over spilt milk, even though we are taught to do neither. Focusing on the present at the expense of the future and basing decisions on lost value are two mistakes common to decision-making that are particularly costly in the world of finance. Behavioral Finance: What Everyone Needs to KnowR provides an overview of common shortcuts and mistakes people make in managing their finances. It covers the common cognitive biases or errors that occur when people are collecting, processing, and interpreting information. These include emotional biases...

Seit über 50 Jahren dominiert die neoklassische Kapitalmarkttheorie unser Verständnis für die Abläufe an Finanzmärkten. Sie hat eine Vielzahl von Theorien und Konzepten hervor gebracht und basiert auf der Annahme eines streng rationalen Homo Oeconomicus. Das vorliegende Buch möchte Studierenden und Praktikern die Türe öffnen zu einer neu entstehenden, verhaltenswissenschaftlichen Sicht auf die Finanzmärkte in der ein realitätsnäherer Homo Oeconomicus Humanus an den Märkten agiert. Er setzt bei der Entscheidungsfindung begrenzt rationale Heuristiken ein und lässt sich von emotionalen Einflüsse...

Behavioral finance studies the application of psychology to finance, with a focus on individual-level cognitive biases. I describe here the sources of judgment and decision biases, how they affect trading and market prices, the role of arbitrage and flows of wealth between more rational and less rational investors, how firms exploit inefficient prices and incite misvaluation, and the effects of managerial judgment biases. There is need for more theory and testing of the effects of feelings on financial decisions and aggregate outcomes. Especially, the time has come to move beyond behavioral fi...

Noting that, in recent years, dozens of academic articles have been written on the subject of behavioral finance, the authors first propose a brief review of the literature and argue that its main message is that behavioral factors affect virtually every aspect of finance—from prices of individual stocks to absolute returns and from individual retirement planning to investor confidence. Yet, they identify a void with respect to discussions as to how active portfolio managers have long applied behavioral finance to the investment process. They go on to explain some market anomalies created as a...

Behavioral Finance

Behavioral finance began as an attempt to understand why financial markets react inefficiently to public information. One stream of behavioral finance examines how psychological forces induce traders and managers to make suboptimal decisions, and how these decisions affect market behavior. Another stream examines how economic forces might keep rational traders from exploiting apparent opportunities for profit. Behavioral finance remains controversial, but will become more widely accepted if it can predict deviations from traditional financial models without relying on too many "ad hoc" assumpt...

Article History

Finance is in the midst of a paradigm shift, from a neoclassical based framework to a psychologically based framework. Behavioral finance is the application of psychology to financial decision making and financial markets. Behavioralizing finance is the process of replacing neoclassical assumptions with behavioral counterparts. This volume surveys the literature in behavioral finance, and identifies both its strengths and weaknesses. In doing so, it identifies possible directions for behavioralizing the frameworks used to study beliefs, preferences, portfolio selection, asset pricing, corporat...

This study aims to determine empirical evidence of the effect of financial inclusion and financial technology (fintech) on the behavioral finance of MSMEs. This study uses a quantitative method with a positivist paradigm approach. The population of this study is all MSMEs in Indonesia. The sample used in this study is 205 respondents (MSME owners) from all over Indonesia. Sampling is carried out using a random technique. Data collection is carried out by distributing questionnaires, both manually and online using Google Forms, and is measured using a 5-point Likert scale. The data processing i...

This study aims to determine the effect of financial socialization and financial technology literacy on financial behavior moderated by financial education in students of the Faculty of Teacher Training and Education UNS. This study used a quantitative research type with a population of Faculty of Teacher Training and Education UNS students. The sample was determined as many as 160 samples were taken using a non-sampling technique. The data collection technique uses a five-point Likert scale of 1-5 points distributed via Google Forms. Test the validity of the instrument using Confirmatory Fact...