BE357-7-SP-CO:
Behavioural Finance

The details
2023/24
Essex Business School
Colchester Campus
Spring
Postgraduate: Level 7
Current
Monday 15 January 2024
Friday 22 March 2024
20
16 November 2023

 

Requisites for this module
(none)
(none)
(none)
(none)

 

(none)

Key module for

MSC N39012 Investment and Wealth Management,
MSC N39024 Investment and Wealth Management

Module description

Behavioural finance has since the 1980s emerged as a new paradigm within finance. On the one hand, it rejects crucial tenets of mainstream finance such as the Efficient Market Hypothesis (EMH) on the basis that agents are less than fully rational and that arbitrage fails to eliminate mispricing.


It posits that people misapply Bayes' law and deviate from the traditional expected utility (EU) framework. It proposes e.g. a prospect theory framework as an alternative to model investor preferences.


On the other hand, it identifies market anomalies or regularities that are at odds with the EMH. These include profitability of momentum, reversals, and value strategies, stock market bubbles and crashes, abnormal returns to non-risk factors, delayed reaction to financial news such as earnings announcements, and overreaction and eventual corrections to measures of media tone and attention amongst others.


Behavioural finance uses ideas from psychology and aspects of limits to arbitrage to explain these. In this module, we will discuss psychological concepts and ideas most relevant to financial applications while at the same time emphasising the deviations from rational beliefs and rational preferences, and show how allowing for common human traits such as overconfidence, loss aversion, conservatism, anchoring, framing, mental accounting, representativeness, emotions, etc., and limits to arbitrage give us a better understanding of financial markets and the trading strategies of investors. We will consider applications in the context of the aggregate stock market, the cross-section of average returns, investor trading behaviour, financing and investment decisions of firms, savings behaviour, and behavioural investing amongst others.

Module aims

The aims of this module are:



  • To provide alternative advanced theoretical models to neoclassical financial model that are based on the efficient market hypothesis.

  • To understand how key cognitive biases and limits to arbitrage are introduced in advanced behavioural models of investment behaviour and asset prices.

  • To examine the application of advanced concepts in behavioural finance to real world issues such as mergers and acquisitions and investment strategies.

  • 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 learning outcomes

By the end of the module, students will be expected to be able to:



  1. Understand the implications of psychological biases and of limits to arbitrage for financial markets and asset prices.

  2. Understand the differences between behavioural and traditional explanations of anomalies in financial markets.

  3. Be familiar with the literatures in both empirical and theoretical developments of behavioural finance.

  4. Evaluate the theoretical and empirical evidence for behavioural models and hypotheses.

Module information

No additional information available.

Learning and teaching methods

This module will be delivered via:

  • One 2-hour lecture per week.

Bibliography

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.

Assessment items, weightings and deadlines

Coursework / exam Description Deadline Coursework weighting
Coursework   In-class test     100% 
Exam  Main exam: In-Person, Open Book, 120 minutes during Summer (Main Period) 
Exam  Reassessment Main exam: In-Person, Open Book, 120 minutes during September (Reassessment Period) 

Exam format definitions

  • Remote, open book: Your exam will take place remotely via an online learning platform. You may refer to any physical or electronic materials during the exam.
  • In-person, open book: Your exam will take place on campus under invigilation. You may refer to any physical materials such as paper study notes or a textbook during the exam. Electronic devices may not be used in the exam.
  • In-person, open book (restricted): The exam will take place on campus under invigilation. You may refer only to specific physical materials such as a named textbook during the exam. Permitted materials will be specified by your department. Electronic devices may not be used in the exam.
  • In-person, closed book: The exam will take place on campus under invigilation. You may not refer to any physical materials or electronic devices during the exam. There may be times when a paper dictionary, for example, may be permitted in an otherwise closed book exam. Any exceptions will be specified by your department.

Your department will provide further guidance before your exams.

Overall assessment

Coursework Exam
50% 50%

Reassessment

Coursework Exam
0% 100%
Module supervisor and teaching staff
Dr Vivek Nawosah, email: vnawo@essex.ac.uk.
Dr Vivek Nawosah
E: ebspgtad@essex.ac.uk

 

Availability
Yes
No
No

External examiner

Dr Aris Kartsaklas
Brunel University London
Senior Lecturer
Resources
Available via Moodle
Of 22 hours, 20 (90.9%) hours available to students:
0 hours not recorded due to service coverage or fault;
2 hours not recorded due to opt-out by lecturer(s), module, or event type.

 

Further information
Essex Business School

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