Students Staff

Module Details

BE335-6-AU-CO: Behavioural Finance

Year: 2017/18
Department: Essex Business School
Essex credit: 15
ECTS credit: 7.5
Available to Study Abroad / Exchange Students: Yes
Full Year Module Available to Study Abroad / Exchange Students for a Single Term: No
Outside Option: No
Pre-requisites: BE311 OR BE313
Co-requisites:

Staff
Supervisor: Dr Vivek Nawosah
Teaching Staff: Dr Vivek Nawosah
Contact details: vnawo@essex.ac.uk

Module is taught during the following terms
Autumn Spring Summer

Module Description

For many years the Efficient Market Hypothesis (EMH) had been assumed to be valid within academic circles. Despite this, many practitioners choose active investment strategies that are premised on markets being inefficient; to take two examples, momentum investors buy stocks that have recently increased in value while value investors seek to buy grossly under-valued stocks. In addition, there is increasing evidence of the existence of a wide variety of anomalies that represent an empirical challenge to the EMH. These include: stock market bubbles and crashes; abnormal returns to non-risk factors; delayed reaction to financial news such as earnings announcements; overreaction and eventual corrections; and the apparent profitability of momentum and value strategies.

During the past two decades a new paradigm has developed within finance. Behavioural finance rejects two crucial assumptions of mainstream finance: these are the assumptions of homogeneous, ultra-rational (utility maximising) agents and unlimited arbitrage. Drawing from cognitive psychology, behavioural finance examines ways in which common cognitive biases and heuristics together with and limits to arbitrage influence trading and stock prices. In this module it will be shown how allowing for common human traits such as overconfidence, fear of regret, pride, loss aversion, anchoring, framing, mental accounting, representativeness, etc., and limits to arbitrage enables a better understanding of financial markets and the trading strategies of investors.


Module Aims

* To provide an alternative to the neo-classical financial model that underlies the efficient market hypothesis
* To identify key cognitive biases and heuristics that influence investment behaviour and asset prices
* To present some latest research relating to both the theoretical developments in the field of behavioural finance along with the related empirical evidence.
* To build a bridge between academic research and investment practice.


Module Outcomes

By the end of the module you should be able to:
* Understand the implications of limits to arbitrage for financial markets
* Understand the role of heuristics and biases in influencing asset pricing and investment behaviour
* Understand the theoretical and empirical evidence for a variety of investment strategies based on the assumption of less than fully efficient markets.

Teaching and Assessment

Teaching Methods

The module material will be delivered in the following way:
2-hour lecture each week in the Autumn term.

Assessment

30 per cent Coursework Mark, 70 per cent Exam Mark

Coursework

Assignment worth 30%

Other details

The essay should not exceed 1000 words in length. It should be word processed, double spaced, and written in an appropriately academic style.

Exam Duration and Period

2:00 during Summer Examination period.

Resources

Please note: Due to differing publication schedules, some of this information is based upon the previous academic year.

Teaching Materials

Available via (ORB) Online Resource Bank.

Lecture Recording

Of 37 hours, 37 (100%) hours available to students:
0 hours not recorded due to service coverage or fault;
0 hours not recorded due to opt-out by lecturer(s).

Bibliography

  • All reading lists are available here: http://readinglists.essex.ac.uk/

Further information

External Examiner Information

  • Name: Prof Raphael Markellos
    Institution: The University of East Anglia
    Academic Role: Professor