IB9Y2-15 Behavioural Finance
Introductory description
This module is an introduction into the vibrant and rapidly expanding field of behavioural finance. We will first define what economists usually mean by the term rationality. Then we will discuss in detail some of the key ways that peoples' behaviour can deviate from this definition, and how these deviations can provide an explanation for many of the anomalies we observe in financial markets.
Module aims
To provide students with good knowledge of:
i) behavioural economics;
ii) empirical “anomalies” observed in financial markets, and behavioural explanations of these anomalies
iii) limits to arbitrage
Outline syllabus
This is an indicative module outline only to give an indication of the sort of topics that may be covered. Actual sessions held may differ.
Introduction to Behavioural Finance
Decision Heuristics
Limits to Arbitrage
Style Investing
Prospect Theory
Ambiguity
Investor Overconfidence
Investor Sentiment
Behavioural Corporate Finance
The module primarily concentrates on the psychological motivations that underlie financial decisions and their aggregate implications. In some cases, these motivations could be contrasted with ethical practice with regards to stakeholders and the financial system as a whole.
Learning outcomes
By the end of the module, students should be able to:
- Recognise the value of alternative paradigms based on psychological and social forces for decision making in finance Prospect Theory.
- Comprehensively understand the importance of the distinction between risk and uncertainty.
- Recognise and interpret so called anomalies in asset pricing.
- Comprehensively understand the limitations of arbitrage as a force for bringing about efficient pricing.
- Appreciate the implications of heterogeneity in financial markets.
Indicative reading list
Montier, James Behavioural Finance, Wiley 2002.
Shleifer, Andrei Inefficient Markets, Oxford University Press 2000.
Subject specific skills
Evaluate evidence for pricing anomalies.
Build models that incorporate behavioural characteristics.
Transferable skills
Be able to interpret market phenomena from a behavioural perspective.
Exercise initiative and personal responsibility.
Work effectively independently and as part of a team.
Study time
| Type | Required |
|---|---|
| Lectures | 9 sessions of 2 hours (8%) |
| Seminars | 9 sessions of 1 hour (4%) |
| Private study | 123 hours (55%) |
| Assessment | 73 hours (33%) |
| Total | 223 hours |
Private study description
Self-study includes preparation for assessments and pre-reading for lectures and seminars
Costs
No further costs have been identified for this module.
You do not need to pass all assessment components to pass the module.
Assessment group A
| Weighting | Study time | Eligible for self-certification | |
|---|---|---|---|
| Individual Written Project | 90% | 65 hours | Yes (extension) |
| Class Participation | 10% | 8 hours | No |
|
Class participation related to the asynchronous content |
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Feedback on assessment
Feedback via My.WBS
Courses
This module is Optional for:
- Year 1 of TIBS-N4N3 MSc in Accounting and Finance
- Year 1 of TIBS-N300 MSc in Finance
- Year 1 of TECS-C8P8 Postgraduate Taught Behavioural and Economics Science (Economics Track)
- Year 1 of TECA-L1P6 Postgraduate Taught Economics
- Year 1 of TECA-L1P7 Postgraduate Taught Economics and International Financial Economics
- Year 1 of TIBS-LN1J Postgraduate Taught Finance and Economics
- Year 1 of TIBS-N3G1 Postgraduate Taught Financial Mathematics