Perspective Of Behavioral Finance Research Articles

Behavioral Finance Perspectives on Pakistan Stock Market Efficiency: Assessing the Prospect Theory Empirically Using Adaptive Pattern of Efficiency across Military and Democratic Phases.

The study is based on empirical syntheses in understanding the sagacity of investors, stock returns, and stock market efficiency behavior in the theoretical frame of behavioral finance patterns. The analyses employed a long extent of Pakistan stock market Returns data from June 1994 to November 2019 along the two segments of economic are named as Military phase (1999-2008) and Democratic phase (1994-1998) (2009-2018) to explore the weak form of efficiency of the Pakistan stock market. In this research Autocorrelation, variance ratio tests are conducted on the returns (weekly based) KSE 100 index adaptive pattern of market efficiency across the overall period as well as for both the Military Phase and the Democratic phase. The efficiency tests show trends of a stock behavior, and accordingly forming bounded-adaptive market efficiency. These tests confirmed the presence of asymmetric dynamic behavior of returns obviousness in addition to risk and return relationships across two political states. The overall and democracy results are insignificant that indicates that there is no autocorrelation between a series of returns and its lagged value for the null hypothesis AR=0. Besides this, in the military phase, the results are significant which specify that there is autocorrelation between the series of returns and its lagged value for the null hypothesis AR=1.So the null hypothesis is rejected for the military phase. The overall results of the VR test show that unbiased variance estimation (Homo) is significant at 1% for the null hypothesis VR=1. But heteroskedastic robust standard error estimation (Hetero) is insignificant for the null hypothesis VR=1. In the military phase, the results show that unbiased variance estimation (Homo) is significant at 1% for the null hypothesis VR=1. Heteroskedastic robust standard error estimation (Hetero) is also significant for the null hypothesis VR=1. In democracy phase results show that unbiased variance estimation (Homo) is significant at 1% for the null hypothesis VR=1. But heteroskedastic robust standard error estimation (Hetero) is insignificant for the null hypothesis VR=1. These shreds of evidence provide support to bounded adaptive rationale of investors' behavior, dynamic stock return behavior and accordingly forming bounded adaptive market efficiency.

Behavioral Finance Perspectives on Pakistan Stock Market Efficiency: A theoretical review

The study is based on historical and hypothetical syntheses in understanding the sagacity of investors, stock returns, and stock market efficiency behavior in the theoretical frame of behavioral finance patterns. This research is guided by multidisciplinary behavioral related theories. This study explored Philosophy, theories, methods argument, and difference of opinions along with finance scholars in modern and behavioral finance paradigms. The perspectives on market efficiency studies between the two paradigms are discussed here based on interconnected theoretical perspectives.

Financial Behavior during COVID-19: Cognitive Errors That Can Define Financial Future

Purpose: The purpose of this study is to determine the economic effects caused by the crisis impact of the COVID-19 pandemic. Methodology: We explored various kinds of literature from various journals to find out the level of trust and financial behavior of the public during the COVID-19 pandemic. Results and findings: The phenomena that occurred during the crisis due to the COVID-19 pandemic, such as excessive volatility and the confidence of unaffected financial institutions, cannot be explained through the traditional market paradigm. In this paper, we explore this phenomenon from a behavioral finance perspective and discuss some relevant cognitive errors and biases during and after the crisis due to the COVID-19 pandemic. Limitation: The study explains by exploring the phenomenon from the viewpoint of financial behavior and discussing some of the relevant cognitive errors during and after the crisis. We only look at each phenomenon from a psychological point of view and consider its relevance to financial institutions and markets as well as the financial crisis due to the COVID-19 Pandemic.

Behavioral Finance Perspectives on Pakistan Stock Market Efficiency: Assessing the Prospect Theory Empirically with an Adaptive Pattern of Efficiency across Military and Democratic Regimes

This study is based on pragmatic creations to make the hypothetical frame focusing on behavioral finance pattern for finding the sagacity of investors, stock returns, and effectiveness of stock market performance. The research investigates an extensive extent of Pakistan stock market Returns data from June 1994 to December 2018 along with the two economic segments including the Military phase (1999-2008) and Democratic phase (1994-1998) (2009-2018) to determine the Pakistan Stock market efficiency. To this end, autocorrelation and variance ratio tests were performed on the returns (weekly based) KSE 100 index during overall period as well as for both the Military Phase and the Democratic phase using adaptive pattern of market competence. The weak efficiency tests show trends of a stock performance, and consequently developing of bounded-adaptive market effectiveness. These tests recognized the presence of asymmetric dynamic behavior of returns obviousness in calculation of risk and return associations during two political states. These confirmations offer provision to investors bounded adaptive rationality, behavior, vigorous behavior of stock return and as a result establishing effectiveness of bounded adaptive market.

Analysis of Market Manipulation from the Perspective of Behavioral Finance

Behavioral finance is a hot issue in the field of international finance in recent years. It draws on the research results of psychology, behavioral science and sociology, and systematically studies the investment decision-making behavior of investors under irrational assumptions and its impact on asset pricing. From the perspective of behavioral finance, this paper discusses how investors are influenced by information in the market manipulation phenomenon to make irrational decisions, and the market manipulation behavior artificially distorts the normal price of the securities market, making the price and value of the securities seriously deviate, resulting in false supply and demand, misleading the flow of funds, can not truly reflect the relationship between market supply and demand, and damage the interests of investors. Therefore, strengthening the supervision of stock price manipulation and formulating relevant regulatory measures are of great significance for controlling risks, enhancing market effectiveness, and making the securities market healthy and smooth.

Overconfidence and Herd Effect in Behavioral Finance

There are some puzzles in the securities market that are difficult to explain in traditional financial theory, such as excessive trading in the stock market, financial bubbles and crashes. The financial bubble is an important research content of behavioral finance. This paper first briefly combs many bubbles and crashes in the history of human finance, and analyzes the causes of bubbles. Then, from the perspective of behavioral finance, this paper discusses the influence that overconfidence and herd effect of investors on securities trading decisions and earnings. (1) Overconfidence leads to frequent trading of investors and loss of wealth; (2) China's stock investors exist The herd effect and this effect will increase the risk of stock price crashes. Finally, according to the significant overconfidence and herding effects among domestic investors, this paper lists some suggestions.

Research on the Impact of Irrational Investor Behavior on IPO Underpricing in Main-board, SME Board and gem: Based on Behavioral Finance Perspective

This paper analyzes the phenomenon of IPO underpricing from the perspective of behavioral finance, and examines the effects of the irrational behavior of investors on the IPO underpricing of China's stock market by selecting the IPO underpricing rate, the first day turnover rate, the opening price rate and the lottery rate and so on. The study found that the investor sentiment in the three markets has a significant impact on the IPO underpricing, in which the investor sentiment in the continuous trading stage of the SME board and the gem has more strong influence on IPO underpricing. At the same time, this paper compares the difference between the Main-board, the SME board and the gem on the underpricing rate of IPO. Among them, the raising scale of the SME board and the gem has a significant negative impact on the IPO underpricing. Finally, combining with the reality of IPO underpricing in China's stock market, the paper puts forward some countermeasures and suggestions in order to weaken the problem of underpricing and promote the healthy development of China's securities market.

The Application of Behavioral Finance in Trading—Analysis from Hainan and Xiong’an Property Market and Stock Market

Behavioral finance has once again caused great fever after winning the Nobel Prize in 2017. Many theories can be more confirmed in the capital market. In 2017 and 2018, the establishment of the Xiong'an New District and the Hainan Free Trade Zone, the stocks in these two regions quickly went up, and the property market is also rapidly entering the frenzy. However, the performance and reasons of these two regions are still different. After the Xiong'an stock market experience, in just a few months, the stocks in the Hainan plate are still rapidly rising, and history seems to repeat itself. This paper will analyze the reasons for this phenomenon in these two regions from the perspective of behavioral finance, and the behavioral finance theory existing between the two regions.

Will Management Emotion Affect the Maturity Structure of Corporate Debt?

Based on behavioral finance theory, this paper takes 22186 observation samples of China's Shanghai and shenzhen a-shares from 2007 to 2017 as research objects, try to measure the degree of over-optimistic of management by analyzing the tone of listed companies' annual reports, on this basis, the influence mechanism of over-optimistic of management on corporate debt financing decisions is investigated, and the heterogeneity is analyzed from the property right nature, financing constraints and economic policy uncertainty. The research results show that: First, the Python language analysis module is used to analyze the management intonation vocabulary in the annual report, and to build a linear model of the management intonation with the actual business operation and future prospects of the enterprise, take the residual error of the linear model as the proxy variable of over-optimistic of the management, this provides a reliable measurement method for the subsequent theoretical research on over-optimistic of management; Secondly, over-optimistic of the management will lead to larger scale of new debt financing and longer debt maturity structure, which is still true after controlling endogenous problems; Third, when property rights are non-state-owned enterprises, financing constraints are more serious and economic policy uncertainties are higher, excessive optimism of management has a more significant impact on corporate debt financing. From the perspective of behavioral finance, this paper examines the influence of over-optimistic of management on corporate debt financing decisions, enriches the relevant theoretical literature on the influencing factors of corporate debt financing, and has positive significance for comprehensively understanding the decision-making process of corporate debt financing. Keywords: Over-optimistic ; Debt Financing; Debt Maturity Structure DOI : 10.7176/RJFA/10-16-15 Publication date : August 31 st 2019

Behavioral-related firm characteristics, risks and determinants of stock returns

PurposeThis paper aims to investigate a relatively new anomaly of investment growth and revisits well-known anomalies of size and value. It aims to answer two main research questions. First, can covariance risks (i.e. factor loadings) be excluded from being determining variables that drive return premiums and explain stock returns? Second, from a behavioral finance standpoint, the authors examine whether using firm characteristics is a more practical and accessible approach and also meets the necessary and sufficient conditions to analyze stock returns.Design/methodology/approachThe authors create the investment-growth-based factor (LMH) which is defined as the return difference between low and high investment growth portfolios. The authors then incorporate the LMH factor along with other characteristic-based factors and their loadings into characteristic-balanced portfolio and three-factor model tests.FindingsThe authors find that covariance risks on investment growth, size and value are not necessary as determining variables. Instead, they find that behavioral-related firm characteristics of investment growth, size and value are necessary and sufficient as determinants of return premiums and stock returns.Practical implicationsThe results have practical and useful implications for investors in their stock portfolio analysis and selection because firm characteristics are relatively more available than covariance risks that need estimation and typically contain measurement errors.Originality/valueThe paper has practical value to investors in their stock portfolio analysis and selection. Methodologically, in contrast to prior studies that do not directly use the investment growth to control for portfolio characteristics, the use of the newly created LMH factor and its loadings allows us to directly and properly test if the investment growth anomaly is related to the investment growth characteristic that is hypothesized to drive return premiums and determine stock returns from behavioral finance perspectives.

Research on the Influence of Managers’ Self-Serving Attributive Behavior on Enterprise Investment Efficiency

Corporate investment behavior has always been a matter of great concern. It is the main force for corporate growth and basis for future cash flow growth. Investment will directly affect the profitability and operational risks of enterprises, and will also affect financing and dividend distribution and series of corporate financial policies. However, there is always a large number of under-investment or over-investment behavior in enterprises in reality, which is also called the non-efficiency investment by enterprises. In addition to macro factors, the behavior and psychological deviation of manager also has an impact on corporate investment behavior. From the perspective of behavioral finance, this paper draws on the phenomenon of psychological deviation of people’s overconfidence in psychology, and measures the overconfidence of managers in 2015-2017. The impact of behavior on corporate investment efficiency attempts to provide theoretical explanations and empirical evidence for the phenomenon of non-efficiency investment.

Research on the Influence of Managers’ Self-Serving Attributive Behavior on Enterprise Investment Efficiency

Corporate investment behavior has always been a matter of great concern. It is the main force for corporate growth and basis for future cash flow growth. Investment will directly affect the profitability and operational risks of enterprises, and will also affect financing and dividend distribution and series of corporate financial policies. However, there is always a large number of under-investment or over-investment behavior in enterprises in reality, which is also called the non-efficiency investment by enterprises. In addition to macro factors, the behavior and psychological deviation of manager also has an impact on corporate investment behavior. From the perspective of behavioral finance, this paper draws on the phenomenon of psychological deviation of people’s overconfidence in psychology, and measures the overconfidence of managers in 2015-2017. The impact of behavior on corporate investment efficiency attempts to provide theoretical explanations and empirical evidence for the phenomenon of non-efficiency investment.

Investor behavior, information disclosure strategy and counterparty credit risk contagion

Counterparty credit risk caused by the excessive expansion of credit derivatives is becoming more and more prominent. The study of evolution mechanism of its contagion will help the financial regulators set up a scientific and accessible prevention and control strategy. From the cross perspective of behavioral finance and information economics, this study analyzes the mechanism of counterparty credit risk contagion. Based on the epidemic model, a network model of it is built with the consideration of investor behavior and information disclosure strategy. The network topology characteristics of it are analyzed in theory. Meanwhile, this study analyzes the evolution characteristics of it in numerical simulation. The main conclusions are as follows: First, investor behavior or information disclosure strategy only affects counterparty credit risk contagion in local credit asset network, while it is gradually disappearing in global credit asset network. Second, noise can enhance the impact intensity of investor behavior or information disclosure strategy on counterparty credit risk contagion, and lead to the spread of counterparty credit risk synchronously in local and global credit asset networks. Third, information transmission rate has “local strengthening effect” on investor behavior. The timing of information release and the tendency of information disclosure exert a “global suppression effect” on the influence of investors, and the ability of investor information decision-making has a “local suppression effect” on the timing of information release and the tendency of information disclosure. Through the comprehensive adjustment of investor behavior and information disclosure strategy, the goal of preventing and controlling counterparty credit risk contagion can be realized in local and global credit asset networks.

An equilibrium model of the supply chain network under multi-attribute behaviors analysis

This paper studies a supply chain network (SCN) equilibrium model considering decision makers’ multi-attribute behaviors from the perspective of behavioral finance. In this paper, an equilibrium model of an uncertain SNC is constructed, in which retailers choose their decisions according to their risk-averse behavior, loss-averse behavior, and regret-averse behavior. By using different weights to represent retailers’ attitudes to these three behaviors, the retailers’ multi-attribute utility functions are developed. The equilibrium conditions of the manufacturers, the retailers, together with the network are established by the finite-dimensional variational inequality formulation. Three numerical examples are solved. In the first numerical example, we illustrate the effect of each of these three behaviors on the equilibrium decisions, the profits, and the utilities of the decision makers. In the other two numerical examples, we explore the effects of changes in attitudes to these three behaviors on the equilibrium decisions, profits, and utilities of the decision makers. The numerical results show that the equilibrium decisions are affected by each of these three behaviors very much. Moreover, they are sensitive to the changes in attitudes to these behaviors.

R&D value of Chinese manufacturing listed companies

Purpose The way to measure the value of an enterprise’s R&D investments remains elusive for theoretical and empirical study on innovation economics. The paper aims to discuss this issue. Design/methodology/approach This paper expands the asset-value model pioneered by Griliches (1981) and applies it for the first time to the Chinese stock market to calculate the value of R&D investment instilled by Chinese manufacturing listed companies (CMLCs) from 2003 to 2014. Findings The authors find that: the assets-value model can better explain the enterprise value composition of CMLCs; with equal input, the value of R&D is higher than that of tangible assets, and lower than that of organizational assets; compared with the developed countries, the R&D value of CMLCs is lower; and the R&D value of CMLCs saw a downward trend from 2007 to 2014. Originality/value Furthermore, by rationally estimating the value of organizational assets and non-tradable shares, and innovatively introducing semi-annual momentum indicators from the perspective of behavioral finance to control the influence of investor sentiment on enterprise value, this paper tries to develop the asset-value model and provides a feasible solution to the problem of measuring the value of Chinese enterprises’ R&D investment.

Executive Equity Incentives, Overconfidence and Corporate Inefficient Investment

In the past research on equity incentives, the influence of incentive system on individual psychological factors was often neglected. From the perspective of behavioral company finance, this paper takes executives from 2010 to 2016 China A-share listed companies as research samples to research framework for overconfidence, executive equity incentives, and corporate inefficient in-vestment. The results of the study show that equity incentives can alleviate the underinvestment behavior of executives by influencing executives’ over-confidence, and executive overconfidence is partly a sub-mediating effect. However, for over-invested enterprises, the indirect effect of executive over-confidence generated by equity incentives on corporate over-investment is a deterioration, and the direct effect of equity incentives is opposite to the indirect effect. So executives’ overconfidence in equity incentives, in the ex-cessive investment of enterprises, plays a special mediating effect—the cover effect.

Public Opinions Impacts on Cryptocurrency Valuation: A View from Behavioral Finance Perspective

Many fintech start-ups participant companies and cryptocurrencies have experienced phenomenal growth in value during the past several years. Many specialists would like to know the reasons for such success. In this article we investigate the predictive power of public opinions. This is one of the few works that using quantitative analysis connects social media and internet users' activities with cryptocurrency valuations.

Research on the Relationship between CEO's Overconfidence and Corporate Investment Financing Behavior

At present, the classic corporate finance theory is challenged by various behavioral visions of corporate leaders in the actual decision-making of corporate finance. From the perspective of behavioral finance, this paper selects the data of A-share listed companies in China's Shanghai Stock Exchange and Shenzhen Stock Exchange in 2003-2016 to study the relationship between CEO's overconfidence and business operations. The study found that: Overconfidence CEOs will tend to increase the level of leverage, increase the number of loans, especially to increase the number of short-term loans; When the economic growth is faster, the listed company's CEO is more inclined to overconfidence; However, unlike the results of foreign studies, overconfident companies did not replace CEOs more frequently than non-overconfident companies, and did not increase the probability of bankruptcy. Finally, the CEO of a state-owned company does not appear to be more overconfident than the CEO of a private company.

Application of situational stimuli for examining the effectiveness of financial education: A behavioral finance perspective

The lack of financial education is often considered the reason for poor financial decision making abilities within the population. Many believe that this could be the consequence of lower rates of financial literacy among Americans. However, as financial education programs continue to become more pervasive, other scholars have argued that financial education may not be very effective in improving peoples’ financial decision making abilities. This study examines the role of situational stimuli on the delivery of financial education on investment related topics. The sample is comprised of college students who were randomly assigned to treatment and control groups for the empirical analyses of this study. Results from the experimental application of the three types of treatments when delivering investment related financial education, are presented. The findings indicate that investment-related financial education improves investment knowledge. Additionally, situational and conditional stimuli related to market uncertainty and volatility, and peer effects do not hinder this information processing and knowledge learning process. Findings shed light on the design and evaluation of national financial education programs for financial educators and policymakers.

Analysis of Merger and Acquisition in Pakistan

We examine the financial performance of firms in the post-Merger and acquisition period for firms listed on the Karachi Stock Exchange by exploring various motives of merger and acquisitions offered by theoretical and empirical literature. Specifically, we explore these motives in the context of the theory of synergy, agency theory and behavioral finance perspectives. Empirical results for agency theory shows the presence of empire building motives that lead to the underperformance of firms in post-merger and acquisition period. The study finds no support for managerial risk aversion hypothesis of agency theory in Pakistani market. Empirical results do not find any evidence to support the presence of managerial hubris or overconfidence proposition but we do find evidence in support of the escalation of commitment hypotheses and its impact on post-merger and acquisition performance.