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Module Details

BE335-6-AU-CO: Behavioural Finance

Note: This module is inactive. Visit the Module Directory to view modules and variants offered during the current academic year.

Year: 2018/19
Status: Inactive
Department: Essex Business School
Campus: Colchester Campus
Term: Autumn
Level: Undergraduate: Level 6
Essex credit: 15
ECTS credit: 7.5
Available to Incoming Essex Abroad / Exchange students: Yes
Available to Outside Option: No
Available to Audit: No
Module Start and End Dates: Thursday 04 October 2018 - Friday 14 December 2018
Pre-requisites: BE311 OR BE313
Co-requisites:

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

*Please note: Due to differing publication schedules, items marked with an asterisk (*) base their information upon the previous academic year.

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

Assessment

30 per cent Coursework Mark, 70 per cent Exam Mark

Exam Duration and Period

120 minutes during Summer (Main Period) (Main)

Teaching Methods

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

Resources

Teaching Materials

Available via Moodle.

Lecture Recording*

Of 29 hours, 29 (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*

  • Deaves, Richard. (2010) Behavioral finance: psychology, decision-making, and markets, Mason, OH: South-Western/Cengage Learning.

The above list is indicative of the essential reading for the course. The library makes provision for all reading list items, with digital provision where possible, and these resources are shared between students.

Further reading can be obtained from this module's reading list.

Further information

Department Website: Essex Business School

External Examiner Information

  • Name: Dr Thanos Verousis
    Institution: The University of Newcastle-upon-Tyne
    Academic Role: Senior Lecturer in Accounting & Finance

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