Behavioural Finance

Introduction

For a very long time, the field of finance has been dominated by a successful paradigm based on the notions that investors and managers are rational and that the market is efficient. In recent decades, however, anecdotal evidence as well as theoretical and empirical research has shown this paradigm to be insufficient to describe various features of actual financial markets. In this course, we explain financial market phenomena by incorporating institutional, social, cognitive, and emotional biases to the traditional paradigm. This broader perspective is called behavioural finance.

The objective of this course is to give students an understanding of investor and managerial behaviour and its impact on financial market outcomes. The participants should be able to identify most common obstacles to making rational decisions, to debias their own decisions, and to understand the risks and opportunities associated with biased decisions. The course spans all major fields of finance, including household finance, asset pricing, and corporate finance. It also relates to an emerging field of sustainable finance through the social preferences investors may have and how those affect investment decisions. Different topics covered in the course relate to sustainable development goals (SDGs). During the course, how behavioural finance relates to these SDGs will be consistently explored.

Course content

• How does behavioural finance differ from non-behavioural finance?
• How does behavioural finance help us to understand investor behaviour?
• What are the implications of investor behaviour for asset prices?
• How does investor behaviour influence corporate decision-making?
• How does investor behaviour influence sustainable development goals?