Developments In Behavioral Finance Research Articles

THE INFLUENCE OF BEHAVIORAL BIASES ON FINANCIAL MANAGERS’ DECISION MAKING

Behavioral Finance becomes more important in connection with the massive work of financial professions, when the accounting and financial work created should ensure the uninterrupted functioning of finances in conditions of their permanent orientation to changing human needs. In conditions where the algorithms created on the basis of classical finances do not take into account the irrational moments of human behavior, behavioral tools become a means to prevent crashes of new mechanisms for finance functioning in a new digital economy. The purpose of the article is to study the basic theories as well as the stages of formation and development of behavioral finance as an important area of financial research and to justify the need for its further evolution in modern conditions. The article consistently reveals the economic essence and role of behavioral finance and the principles of effective interaction of business entities in the context of behavioral economics, which should be based on the principles of trust, information transparency, coherence of interests, responsibility, compliance with ethical standards, financial inclusion, and mutual benefit. The necessity of behavioral finance study as an independent direction of modern financial research is considered. The basic theories and stages of the formation and development of behavioral finance are highlighted. The article outlines the criteria for substantiating and choosing managerial decisions. The features of the behavioral model and factors influencing the making of an irrational decision by a business entity are revealed. The most common effects that provoke irrational behavior of economic entities are highlighted. Some aspects of behavioral finance’s influence on the decisions of enterprises’ financial managers are revealed with the definition of the role of incentive motives and psychological factors in the choice of an individual’s financial behavior model and their investment decision-making. The necessity of further research on individuals’ behavioral strategies in modern financial research is grounded model and their investment decision-making. The necessity of further research on individuals’ behavioral strategies in modern financial research is grounded

BEHAVIORAL FINANCE: ESSENCE AND APPROACHES TO DEFINITION

The article analyzes approaches to defining the essence of behavioral finance. The historical nature of the concept of "behavioral finance" and the main trends in its definition have been studied. The main areas of scientific knowledge of behavioral finance are highlighted, respectively, according to the psychological and economic approach. Evolutionary changes in the views of the scientific community regarding the concept of rationality of economic agents are considered. The interpretation of the concept of "behavioral finance" by domestic and foreign scientists was analyzed, the connection of behavioral finance with financial theory, practice and psychology as the basis for all definitions of their complex conceptualization was investigated. It was established that the main influence on the further development of behavioral finance is the failure of the neoclassical theory to explain a number of anomalies that are the result of irrational decisions. It has been proven that in connection with the growth of the trend of practical application of behavioral finance, the relevance of the study of the theoretical aspect of this direction of financial science is also increasing.

Behavioral Finance Research in 2020: Cui Bono et Quo Vadis?

Emanating from the influential survey of Barberis and Thaler (2003), this systematic literature review examines the significant volume of studies on behavioral finance from 36 reputable finance journals published be-tween 2009 and 2019. The findings are clustered into eight prominent research streams, which indicate the current developments in behavioral finance. Findings show that research intensively focuses on behavioral biases and their influence on economic phenomena. Driven by the impetus to understand the human mind, significant findings originated in the relatively new field of Neurofinance. Additionally, the analysis addresses the influence of market sentiment and its correlation with some of the other findings. Furthermore, implications on the limits to arbitrage in connection with some financial anomalies complete the holistic picture.

Review of Managerial Overconfidence and Corporate Acquisition Goodwill Impairment Research

In recent years, the large amount of goodwill impairment caused by high-priced mergers and acquisitions has also aroused widespread discussion. Why do companies purchase at a high premium? What effect does a high premium have on the impairment of goodwill? With the development of behavioral finance, this article uses the perspective of overconfidence in this theory, and answers the above two questions by reviewing the domestic and foreign literature. We find that the overconfidence in management tends to form the overpayment in corporate acquisitions, and the overpayment is more likely to lead to the goodwill impairment. At last, this article also proposes future research directions and I hope it can provide theoretical references for future related research.

How to select a promising enterprise for venture capitalists with prospect theory under intuitionistic fuzzy circumstance?

Venture capitalists are confronted with decision-making problems under an uncertain investment circumstance, which lead them to rely heavily on intuition and psychological state to make their decisions in most cases. It has attracted more and more researches to focus on such behaviors of venture capitalists in recent years and along with the development of behavioral finance in venture capital field. Through the review of framework of venture capitalists’ decision-making and the investigation of background of venture capital market in China, we find that the decision-making framework, which is based on the traditional expected utility theory with hypothesis that the investor is completely rational, is inconsistent with reality. Moreover, the decision-making information is often depicted as crisp number with probability that couldn’t express the uncertainty which is the fundamental nature of venture capital circumstance. Therefore, a novel approach that considers both the bounded rationality of venture capitalists and the uncertain circumstance of venture capital in decision-making is urgent to select the promising enterprise in China. Fortunately, prospect theory, as one of the greatest achievement in behavioral finance, thinks that venture capitalists focus on subjective probabilities instead of objective probabilities and show the behavior characterized by risk aversion over gains and risk seeking over losses, which can depict the psychological state of venture capitalists properly. Furthermore, the intuitionistic fuzzy information can express essential uncertainty in venture capital circumstance accurately. Therefore, we adopt Intuitionistic Fuzzy Prospect Theory that integrates both the merits of prospect theory and intuitionistic fuzzy information to aid venture capitalists to make a better decision in the real world. In this paper, the detailed steps of how to select a promising enterprise has been illustrated. Then, a practical example of selecting the promising enterprise for venture capitalists in Ali Capital is provided to exhibit the process of application and exemplify the feasibility of this selecting approach. Meanwhile, from the comparison of ranking results derived by TOPSIS and this approach, we find that the approach proposed in this paper is superior to the TOPSIS in selecting the promising enterprise according to the subsequent funded results of enterprises.

Do Chinese Industries Predict the Stock Market Due to Slow Diffusion of Information? Analysis of the Shanghai Stock Exchange

Returns predictability and cross autocorrelations is an important consideration in behavioral finance and is of considerable interest to investors and financial economists. This area gained much attention due to developments in behavioral finance during the last two decades. Previously, lead-lag patterns were supported by argument of rational expectations, however, it lacked much empirical evidence. According to behaviorists' views, it is human inability to process all sorts of information and thus, information moves diffuse slowly from one market to another. In this study, we tested this slow diffusion of information using an extensive set of data over a period from 2004-2013. We found that the market was led by industry returns up to a period of four weeks. This predictive power of industries decreased as the prediction horizon increased. These findings are robust, even if we control for industry size and trading volume. Thus, these findings add considerable support to the slow diffusion of information hypothesis.

Influence of Psychological and Emotional Factors on the Venture Enterprise Value and the Investment Decision-Making

The development of behavioral finance has proposed an outstretched idea for traditional model, that the irrational behavior of venture entrepreneurs and venture capitalists has an important impact on the corporation's investment decision-making. This paper, based on the optimal effort model for double-sided moral hazard, has discussed the influence of the entrepreneurs’ and venture capitalists’ psychological and emotional factors on the venture enterprise value and the investment decision-making. And it turned out that moderate confidence of entrepreneurs and investors are able to offset the impact of moral hazard. Overconfidence of entrepreneurs may lead to lower corporate value, but it may also make the venture enterprise with a negative NPV get investment, while overconfidence of investors may cause overreaction in investment decision-making. Entrepreneurs’ negative and conservative psychology may result in the reduction of firm value, and the venture enterprise with positive net revenue may face the refusal to invest. The venture capitalists’ negative and conservative psychology may result in under reaction in the decision-making process. The research is helpful to the decision making when people analyze venture capitalist’ and entrepreneurs’ decisions under different circumstances of emotional psychology.

Behavioral Valuation: Behavioral Finance and Its Implications for Business Valuation

In the article the contemporary ideology of behavioral finance is discussed. The authors consider the development of behavioral finance and formulate its key principles basing on the analysis of the research literature. The opportunity of using behavioral finance in the theory and practice of business valuation is investigated. Separate components of behavioral finance are suggested for application to business valuation in order to increase its efficiency. Future directions of the research in the field of behavioral finance and behavioral valuation are presented.

Recent Developments in Behavioral Finance

Setting this article against a background of recent academic work, the author reviews the highlights of these studies, emphasizing issues that are particularly relevant for portfolio construction. First, he discusses recent evidence of the ‘disposition effect,’ meaning ‘the disposition to sell winners too early and to hold on to losers too long.’ The helps him present recent evidence on the disposition effect and introduce some of the basic concepts from behavioral finance for those new to the subject. Next, the author addresses the issue of overconfidence, one of the most prevalent behavioral phenomena. He reviews these findings which are based on recent studies about the forecasts, trades, and performances of participants in investment clubs. Finally, he examines two issues that are specifically relevant for retirement portfolios, although they also have more general implications. The first involves naive diversification and the second pertains to the rules investors use to determine how quickly retirement nest eggs are spent.