Behavioral Finance Concepts Research Articles

The Market Efficiency Debate: Developments of Financial Market Theories

A united hypothesis to explain the price movement of financial assets has been a significant research goal over the past few decades. This paper reviews the existing literature on both Efficient Markets and Behavioral Finance, concluding with more contemporary literature that attempts to combine the two theories. It summarizes the EMH and Behavioral Finance concepts, the debate between them, and the evidence supporting both. By recognizing the vast swaths of evidence in support of both hypotehses, one can conclude that the questions surrounding the efficiency or inefficiency of markets remain unanswered. Instead, the evidence supporting both hypotheses suggests the necessity of a compromise to rationalize these results instead of relying on one hypothesis or another. The compromise between both hypotheses, in turn, makes the debate between efficiency and inefficiency almost moot. Researchers must account for human misbehavior and rational expectations on a spectrum when formulating new market hypotheses, remaining open to changes in market theory as new variables continue to be discovered.

Kaitan Mental Accounting Dan Perilaku Keuangan Terhadap Keputusan Investasi Investor Milenial Post Pandemi Covid 19

The Covid-19 pandemic has made online purchases increase quite dramatically. T The focus of mental accounting is how one should respond and evaluate a situation when there are two or more possible outcomes. The concept of behavioral finance takes into account various types of investors in the perception of risk associated with investment decisions. In this study, an analysis was carried out regarding how the influence of Mental accounting and Behavioral finance owned by Millennial investors in Denpasar on investment decisions. The sample was taken using a purposive sampling technique, so that the total sample is 100 millennial investors. The results of this study show that mental accounting and behavioral finance positively and significantly influence the investment decisions of millennial investors in Denpasar.

The mediating effect of the COVID-19 pandemic on heuristic techniques and cognitive biases on investment decision-making

US investors’ behavioral finance and investment decision-making approach became a concern during the COVID-19 pandemic era as the capital market crashed. The study used mediation analysis to explain how or why the COVID-19 pandemic intervened in the causal association of behavioral finance concepts of heuristic techniques and cognitive biases on their investment decision-making. This causal research design study was based on 500 snowball-sampled US investors who answered self-constructed, validated, and reliability-tested Likert-scale quantitative variables measured through a first-party data collection approach. The results showed that the COVID-19 pandemic was a specific moderate to partial significant mediator on the low positive significant relationships between heuristic techniques and investment decision-making, and the COVID-19 pandemic was a specific moderate to full significant mediator on the low positive not significant relationships between cognitive biases and investment decision-making among US investors. From the point of view of behavioral finance, the COVID-19 pandemic situation clearly and significantly demonstrated how US investors used 75.6% heuristics techniques (calculated guesses based on prior knowledge) and 87.5% cognitive biases (unintentional errors in their worldview) to cause the crash of the capital market. These findings confirm the rational expectations theory.

Gender differences in risk perception and investment behavior

Purpose- Gender differences in investment behavior have been reported by various studies. Behavioral investing seeks to bridge the gap between psychology and investing. Behavioral finance is becoming more predominant in the financial and investment industry. The general concept of behavioral finance suggests that investors do not necessarily make rational investment decisions. Many results of behavioral finance studies show that men and women have different strengths and weaknesses in terms of skills required for investment management. This study focuses on the role of gender in risk perception and investment behavior, with a sample size of 288 respondents. In other words, the aim of the research is to reveal whether there is a difference in investment preferences between men and women. It is investigated whether the gender factor affects investment decision-making behavior. Using an experimental finance approach, the relationship between gender diversity and investment decisions is examined. Methodology- This study focuses on the role of gender in risk perception and investment behavior, with a sample size of 288 respondents. Gender differences in investment behavior have been reported by various studies. Behavioral investing seeks to bridge the gap between psychology and investing. Behavioral finance is becoming more predominant in the financial and investment industry. The general concept of behavioral finance suggests that investors do not necessarily make rational investment decisions. In accordance with the aim of the research, to reveal whether there is a difference in investment choices between men and women, the investment differences between the genders are shown using the graphic method in this study. Then, the normality test and Mann-Whitney U test were applied by using 288 respondents, respectively. Findings- According to the graphic method results it is found that women generally prefer to invest between 10% and 25% of their monthly income in financial markets. T cryptocurrency market is riskier than the stock market for both women and men. Women experience more stress than men at the thought of losing money because of their investment choices. The Cronbach Alpha coefficient for estimating the reliability of the scale employed for respondents’ investment preference was found to be 0.701. The results of data processing obtained by the value of the Kolmogorov-Simirnov significant which means the data were not normally distributed residuals. According to Mann-Whitney U test results, it is underlined that the gender factor differs according to the following variables based on 95% significance level: Conclusion- Survey with different aspects of questions focus on investors’ risk perception. “How often do you check your investments?”; “What is your approximate holding time of an investment instrument?”; “What percentage of your monthly income would you prefer to invest in financial markets?”; “The thought of losing money because of my investment choices is stressed me out”; “Have you ever invested in Cryptocurrencies?”; “What is the most suitable option for your knowledge of the cryptocurrency market?”. It is concluded that there is a significant difference between gender and investment preference. Keywords: Behavioural finance, financial market, cryptocurrency, gender factor, risk perception. JEL Codes: G10, G40, G41

Review of COVID-19 Pandemics Impact on Investment Decisions under Behavioral Finance

Since the COVID-19 pandemic outbreak, many studies have explored the impact of the COVID-19 pandemic on financial markets and investors decisions. Most of the studies are conducted under the assumption of rationality and efficient market hypothesis, which imply that investors decisions are always aiming at the maximum profit. However, analyses of investors behaviors during the pandemic with a focus on irrationality are not common. Irrationality is the main theme of behavioral finance, which studies the psychological factors that bias investors decisions from rationality. This paper reviews common theories and biases studied in behavioral finance, including heuristics, mental accounting, disposition effects, overconfidence, and anchoring. In this paper, those concepts are linked to the increased volatility and strikes in financial markets during the pandemic. By analyzing the relationship between behavioral finance concepts, hypotheses are given regarding the impact of the pandemic on increase or decrease of the common irrational behaviors in the financial markets, especially in the stock market.

Anchoring, affect, and efficiency of sports gaming markets around playoff positioning

We consider the wagering market of National Football League (NFL) and National Basketball Association (NBA) games when participating teams have secured playoff positions. We use both the opening and closing lines (analogous to asset prices) of spread bets to examine if potential “letdown” effects, either psychologically or strategically, are priced. Results demonstrate that the initial opening line consistently provides a profitable strategy for those betting against teams that have clinched positions in the post-season. By the close of the betting cycle, closing lines move in the expected direction as the market partially prices the letdown. Many closing lines tighten to the extent that, after paying commissions, the naïve strategy of betting against clinched teams is less profitable. However, certain wagers, for example betting against NFL teams that have clinched top seeds, are statistically significantly economically profitable after paying commissions. These results support the behavioral finance concepts of anchoring, affect, in addition to lines moving towards efficiency.

Financial behavior of households in the context of the development of behavioral finance

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 research will provide an opportunity to justify, and therefore to a certain extent influence the irrational behavior of domestic households, to forecast and model their financial decision-making strategies, as well as to increase the level of financial literacy of Ukrainians. The purpose of the scientific research is to analyze the pragmatics of the formation and implementation of the financial behavior of Ukrainian households in the context of the development of the theory of behavioral finance and to highlight modern trends and current models of such behavior in the conditions of a full-scale war in Ukraine. Research methods: analysis and synthesis, system approach, statistical observation, comparative and logical-structural analysis, graphic interpretation of data, generalization. The main results of the study. It is emphasized that the behavioral model of financial decision-making is based on the main behavioral theories ("theory of prospects", "theory of investor behavior", "theory of noise trading", "theory of the efficiency of trader operations") and effects ("loss aversion effect", "status-quo effect ", "ownership effect", "ostrich effect", "certainty effect", "trap effect", "conservatism effect", "competence effect"). The factors, types and main models of financial behavior of households are singled out and the impact of financial literacy on their formation and implementation is substantiated. The consumer, saving and charitable components of the financial behavior of domestic households were analyzed and the current trends in their formation and implementation in the conditions of a full-scale war in Ukraine were investigated. Considerable attention is paid to the pragmatics of the formation of consumer and financial patriotism of Ukrainians and the specifics of using such a new instrument of citizens' savings as investing in military bonds. Conclusions. The article characterizes the main theories of behavioral finance, elucidates the essence of household financial behavior, defines its most common types, models and factors. Modern trends in the financial behavior of Ukrainian households are identified and analyzed through the prism of the concept of behavioral finance.

Behavioral Finance: A Brief Review of the Context

The financial decision making of individuals is subject to the functioning of the brain system and its performance, which depend on patterns that are currently recognized as biases of human behavior. This article aims to review in context the new trends emerging from traditional economic, psychological and financial analysis to form the concept of behavioral finance and how these trends affect the individual and environment. The search parameters were based on the traditional economic paradigm and its evolution towards behavioral economics, including sociological, behavioral finance analysis and the biases involved in these. In this way, the literature is reviewed, the various contributions that have been made since the 1990s to the research in question and the empirical measurement and behavioral biases of the financial decision-making process. The first results conclude that the neoclassical economics approach has undergone an evident transformation that includes market agents evaluated rationally and the behaviors acquired in financial decisions due to the intervention of biases associated with people's behaviors.

Bank's credit and investment portfolio structure optimization

Methods. To solve the tasks identified in the work the following methods were used: historical and logical methods – to study the existing interpretations of the «payment system» concept, and critical analysis to formulate our own interpretation taking into account the features of digital economic transformation; systematization methods – to form and justify the approach to building the author's vision of the payment system development processes as a basic element of the digital economy. The study also used the basic concepts of behavioral finance, which allowed to establish the motivational features of FinTech and TechFin companies’ formation in the financial market. Results. The article formulates a new interpretation of «payment system» concept in order to update it to further identify economic entities interaction patterns in the mechanism of digital economy. The study of payment instrument development theories allowed the authors to characterize the role of the payment system in the economy. Based on a retrospective analysis of the development process of the payment system using an evolutionary approach, the stage of emergence of FinTech and TechFin companies was singled out. In order to identify the degree of penetration of new types of companies into the traditional financial market, there were studied the dynamics of payments of TechFin (PayPal) and the dynamics of growth of FinTech's customer base (monobank), which are examples of transformed successful digital instruments. Novelty. The proposed interpretation of «payment system» concept allows to comprehensively cover all economic entities involved in the process of exchanging payment instruments, and effectively analyze the interaction of both classical and emerging economic institutions in the digital transformation of society. Practical value. The formulated difference between the concepts of TechFin companies and FinTech implementations allows to differentiate their activities, prepare companies legally and technologically, and choose the appropriate way to implement new technology for financial transactions.

Examining investors' sentiments, behavioral biases and investment decisions during COVID-19 in the emerging stock market: a case of Pakistan stock market

PurposeThis study investigates the impact of the COVID-19 pandemic on investors' sentiments, behavioral biases and investment decisions in the Pakistan Stock Exchange (PSX).Design/methodology/approachThe authors have assessed investors' behaviors and sentiments and the stock market overreaction during COVID-19 using a questionnaire and collected data from 401 investors trading in the PSX.FindingsResults of structural equation modeling revealed that the COVID-19 pandemic affected investors' behaviors, investment decisions and trade volume. It created feelings of fear and uncertainty among market participants. Evidence suggests that behavioral heuristics and biases, including representative heuristic, anchoring heuristic, overconfidence bias and disposition effect, negatively influenced investors' decisions at the PSX.Research limitations/implicationsThis study will contribute to behavioral finance literature in the context of developing countries as it has revealed the impact of COVID-19 on the emerging stock market, and its results are generalizable to other emerging stock markets.Practical implicationsThe findings of this study will help academicians, researchers and policymakers of developing countries. Academicians can formulate new behavioral models that can depict the solutions of dealing with an uncertain situation like COVID-19. Policymakers like the Securities Exchange Commission and the PSX can formulate crisis management strategies based on behavioral finance concepts to cope with situations like COVID-19 in the future and help lessen investors' losses in the stock markets. The role of the Securities Exchange Commission is crucial as it regulates the financial markets. It can arrange workshops to educate investors to manage their decisions during crisis time and focus on the best use of irrational and rational decision-making at the same time using Lo (2004) adaptive market hypothesis.Originality/valueThe novelty of the paper is that the authors have introduced overconfidence and disposition effect as mediators that create a connection between representative and anchoring heuristics and investment decisions using primary data collected from investors (institutional and retail) to demonstrate the presence of psychological biases during COVID-19, and it has been done for the first time according to authors' knowledge. It is a contribution and addition to the behavioral finance literature in the context of developing countries' stock markets and their efficiency.

ИНВЕСТИЦИОННОЕ ПОВЕДЕНИЕ НАСЕЛЕНИЯ В ПЕРИОД ГЛОБАЛЬНОЙ ТУРБУЛЕНТНОСТИ

The main aim of the study is to develop the concept of behavioral finance in the context of the transformation of the investment behavior of individuals in times of global or national turbulence of the socio-economic situation. The subject of the study is a module of socio-economic relations that arises in the process of large-scale crises and shocks in the market of the retail segment of the financial sector of the economy. Research design: the theoretical research is based on papers of the behavioral finance classics, as well as the research of modern domestic and foreign literature. The empirical basis for the application of the statistical-economic method was the official data of The Federal State Statistics Service, Moscow Exchange, Expert RA, etc. The conducted research based on the application of the abstract-logical method allowed us to consider our own conclusions and clarify promising areas for further research. Results: the investment behavior of households during periods of global turbulence is analyzed; specific features of investment behavior and investment potential of Russian citizens are identified; the trend of investment preferences of domestic households during the COVID-19 pandemic is thoroughly studied. Pointing out the transformation of investment behavior of the population that creates prerequisites for the growth of financial risks; promising areas of research of investment behavior of the population during periods of turbulence of various genesis are formulated.

The concept of behavioral finance as applied to the analysis of territorial fiscal policy

The concept of behavioral finance as applied to the analysis of territorial fiscal policy

The Integration of Classic Cars as an Alternative Investment in Wealth Management Environments and the Possible Influence of Behavioral Finance

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An Emerging Need of Introducing Behavioral Finance in Pakistan: Evidence from Investor’s Sentiments and Actions

The basic objective of this research is to study the behavior of stock market investors in Karachi, Pakistan. There are numerous factors that affect investment behavior of an on investment behavior. The study first presents the theoretical background and a deep insight of behavioral finance. Thereafter, a quantitative analysis is presented that shows the impact of demographic and behavioral factors (i.e. age, market experience, qualification, information source, risk capacity) on the investment decisions, in order to understand the investors’ sentiments. Primary data was collected through questionnaires. Because of the nature of variables “Multinomial logistic regression” was performed to find the individual. This paper aims at studying the demographic and behavioral factors, and finding the impact of these factors impact of investment decisions on equity returns. It was found that the demographic and behavioral factors are having significant impact on the investor sentiments that affect their investment decisions. Thus, it is concluded that there is an utmost need of introducing the concept of behavioral finance in Pakistan to make the people be able to control over their emotions to improve their decisions

Market Timing: Opportunities and Risks

Asset allocation decisions, particularly those involving market timing, create both opportunities and pitfalls for investors. In the aftermath of the crash of October 1987, many investors sought protection of capital through market timing or tactical asset allocation strategies. Since then, the popularity of tactical asset allocation has increased both for professional investment managers and individual investors alike. In this paper, I explore opportunities for enhancing returns using tactical asset allocation and market timing, as well as the challenges posed by market timing, including higher costs and the risk of missing the best-performing days of the market. I examine whether investors can succeed using tactical asset allocation and market timing strategies and look to behavioral finance concepts to explain why investors continue to embrace market timing in their investment process. I find that strategic asset allocation was the most important driver of long-term investment success. This is because most market timers typically fail to accurately predict important equity market swings. The long-term odds are not in favor of market timing strategies.

Reflections on 25 Years of Behavioral Finance

In finance, academic research on behavior started in the 1980s. The use of behavioral finance concepts in institutional investing took hold in the 1990s. Behavioral concepts guided the creation of models that used earnings expectation data beginning in 1990. It took several more years before behavioral finance started to gain traction with institutional investors. Brian Bruce, founding editor of <i>The Journal of Investing</i> and <i>The Journal of Behavioral Finance</i>, recounts how the field developed in the early years. <b>TOPICS:</b>Portfolio theory, portfolio construction

The effect of managerial overconfidence on firm value: evidence from companies listed in Tehran stock exchange

&lt;p&gt;Overconfidence, one of the most modern concepts of behavioral finance, both in financial theory and psychology is important. The effects of overconfidence managers Company's procedures, including accounting policies, hence it is important that overconfidence can be inaccurate and inappropriate policies on investment decisions, finance or accounting result and costs heavy impose on companies. Article overconfidence effect on the value of the company's review. The company's value as a dependent variable using Q-Tobin measured. Overconfidence variable as well as the independent variable with studies based on measurement methods and their impact on the performance of 50 companies listed in Tehran Stock Exchange during 2011 to 2015 using regression analysis do. The results of this study showed that overconfidence on both methods have an impact on firm value.&lt;/p&gt;

INVESTMENT BEHAVIOR OF ENGINEERS: AN EMPIRICAL STUDY

INTRODUCTION:Traditional models of finance assume that investors are totally They take their investment decision to maximize their expected utilities. Efficient Market Hypothesis, proposed by Eugene Fama (1970) suggests that all markets are fully efficient. In efficient markets investors demonstrate self-control on their They react on each and every piece of information and that to rationally. There is no role of emotions feelings and other behavioral factors. But this assumption no longer works as number of researchers have found evidence that emotional and behavioral factors also play an important role in investment decision making. And, that investors not al ways react as rational creature when comes to investment as feeling of loss, winner's pride, mental accounting, framing of investments, herding etc also effect decision making.Behavioral Finance is an emerging field which deals with irrational nature of investors. Efficient Market Hypotheses suggest that all market information are immediately incorporated in security prices and that security prices are best estimated and accurate prices all time. But Behavioral Finance denies this assumption and suggest that there are number of evidence such as January Effect, Weekend effect, Seasonality etc. through which it has proved that markets are not efficient all time and investors often travel from rationality to irrationality in perhaps a predictable manner. To some extent, our emotions, feelings and perceptions influence investment decisions and these are known as mental biases. Behavior finance makes an attempt to study irrational behavior of investors in market based on said mental bias. It also explains factors responsible for such behavior. The established finance seeks to understand stock markets using models in which investors are rational. Rationality for that purpose means when investors receive new information, they update their viewpoint on any financial action efficiently. This traditional framework is theoretically simple, but Shiller (2000) advocates that stock market are strongly governed by market information, which directly influence investment behavior of investor. It can be concluded that individual trading behavior cannot be understood in established traditional finance structure. Clark (1918) rightly mentioned that economist may attempt to ignore psychology, but it is sheer impossibility for him to ignore human nature. Emergence of concept of Behavioral finance in 1980s was response to anomalies detected in standard finance models which are blamed for lack of realism in assumptions on human behavior. It examines financial phenomenon of investment through dual lenses of finance and of psychology. In behavioral finance, all stock market anomalies are explained by psychological theories. Lintner (1998) defines behavioral finance as being the study of how humans interpret and act on information to make informed investment decisions. Olsen (1996) asserts that this field of psychological finance tries to understand complexity of standard finance through of psychological decision making process of market. It may be argued here that some stock market phenomenon can be better understood using such models in which some investors are not fully Behavioral finance is expected to look into following possible behavioral patterns in financial markets:* Reaction of an investor to a price change* Reaction of an investor to a news* Extrapolation of past trends into future* Focus on some popular stocks and lack of attention to fundamentals* Seasonal price cycles etc.On theoretical level, if exploitable pricing anomalies exist in market, credibility of Efficient Market Hypothesis (proposed by Fama, 1970) is diluted. When new information is quickly reflected into price, market is known to be efficient. …

How Do People Decide on Life Insurance and Long-Term Disability Insurance Coverage?

The group benefits landscape is changing dramatically. The menu of available options has grown; employers are paying for fewer benefits; and the responsibility for selecting the benefit package has been increasingly left to the employee. However, unlike in the pension world, very little is known about how individuals select their benefits packages, if their selections are optimal for their situations, or what employers can do to encourage the optimal benefit package selection. In this changing benefit landscape, it is important to determine three things: (1) What are current employer practices and their resulting take-up and coverage patterns?; (2) Which practices influence employees’ selections?; and (3) What can employers do to make the employees’ selections closer to the employees’ optimal choices?This first analysis allows us to peer into the black box of employee decision-making and identify what behavioral finance concepts are at play in the group benefits arena. Using information from 24 in-depth telephone interviews, we gain important insight into how employees determine whether to buy supplemental life and supplemental long-term disability insurance, how they decide how much to buy, what they liked and understood from their employer’s presentation, and what features might make these insurance benefits more appealing to the individual.

A Brief Mapping of Theory and Evidence of Investors' Behavioural Biases

Investment decision making focuses on how investors make decisions to buy or sell securities. What guides their choices among alternatives, what are their investment objectives, constraints, and risk profile; and ultimately, what influences their decision making during the stock selection process. Behavioural finance deals with the psychology of the investor. It tries to explain how an investor makes an investment decision and how behavioural and other factors influence the decision making of an investor. Behavioural factors primarily include behavioural biases and personal characteristics of an investor, that is, personality, attitude, risk tolerance, and demographic factors, while other factors include external contextual factors like accounting information, market situations, brand image, and so forth, which have a bearing on decision making. The present paper provides an in-depth review of literature of prominent studies in the area of behavioural finance. The first part of the paper explains the concept of behavioral finance, the second part gives a detailed discussion on the classification of behavioural biases, and the third part discusses the effect of behavioural biases on the trading behaviour of the investors and the feelings of investors after experiencing the outcomes of investment. Towards the end, a comprehensive framework has been formulated representing the influence of behavioural biases on investment behaviour of an investor. The paper concludes that behavioural biases play a significant role in the decision making of the investors, and these biases not only shape the current investment decisions, but also influence investors' future decision making.