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1-Behavioural Finance - Template For Course Syllabus Framing

The document provides a template for a course syllabus on behavioral finance. The 3 credit course is offered as an elective in the second semester of year 2. The course objectives are to help students appreciate the limitations of rational investment models, introduce an alternate framework for understanding price discovery, and identify systematic behavioral factors influencing investments. The course content covers 7 units related to behavioral effects on investment decisions, corporate finance decisions, and the influence of emotions and external factors on markets. Recommended books and references are provided.

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Murugan M
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82 views

1-Behavioural Finance - Template For Course Syllabus Framing

The document provides a template for a course syllabus on behavioral finance. The 3 credit course is offered as an elective in the second semester of year 2. The course objectives are to help students appreciate the limitations of rational investment models, introduce an alternate framework for understanding price discovery, and identify systematic behavioral factors influencing investments. The course content covers 7 units related to behavioral effects on investment decisions, corporate finance decisions, and the influence of emotions and external factors on markets. Recommended books and references are provided.

Uploaded by

Murugan M
Copyright
© © All Rights Reserved
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
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Template for Course Syllabus Framing

Title of the
BEHAVIOURAL FINANCE Total Credits: 3
Course:
Course Category: Electives – 8 Theory Practical Tutorial
Year: II Semester: IV 60 40 0

Course Objectives:
1. To help students appreciate the limitations of ‘rational’ models of investment decision
making
2. To introduce students to an alternate framework for understanding price discovery in the
markets
3. To help students identify persistent or systematic behavioural factors that influence
investment behaviour

Course Contents: (Preferably 5 units of more or less equal weightage)


Unit – I
Investment Decision Cycle, Judgment under Uncertainty, Cognitive information perception,
Peculiarities (biases) of quantitative and numerical information perception, Weber law,
Subjective probability, Representativeness, Anchoring, Asymmetric perception of gains and
losses framing and other behavioural effects, Exponential discounting, Human economic
behaviour, Discount factors for short and long horizons, Experimental measurement of the
discount factor, Hyperbolic discounting.
Unit – II
Utility/ Preference Functions, Expected Utility Theory [EUT] and Rational Thought, Decision
making under risk and uncertainty, Expected utility as a basis for decision-making, Theories
based on Expected Utility Concept, Decision making in historical prospective, Allais and
Elsberg’s Paradoxes, Rationality from an economics and evolutionary prospective, Herbert
Simon and bounded rationality, Investor rationality and market efficiency, Empirical data that
questions market efficiency.
Unit – III
Behavioural Factors and Financial Markets, The Efficient Markets Hypothesis, Fundamental
Information and Financial Markets, Information available for Market Participants and Market
Efficiency, Market Predictability, The Concept of limits of Arbitrage Model, Asset
management and behavioural factors, Active Portfolio Management, return statistics and
sources of systematic underperformance, Fundamental Information, Technical Analysis, and
Behavioural Factors.
Unit – IV
External Factors and Investor Behaviour, Weather, Emotions and Financial Markets, Sunshine,
Geomagnetic Activity, Mechanisms of the External Factor influence on risk perception and
attitudes, Connection to human psychophysiology and emotional regulation, Misattribution as
a mechanism for externals factors influence, Statistical methodology for capturing the effects
of external influence onto stock market returns, Emotional content of news articles and their
correlation with market dynamics, Social trends and market dynamics; music, fashion,
demographics, Active portfolio management, the source of the systematic underperformance.
Fundamental information and technical analysis, the case for psychological influence.
Unit – V
External Factors and Investor Behaviour: Weather, Emotions, and Financial Markets;
Sunshine, Geomagnetic Activity, Mechanisms of the External Factor influence on risk
perception and attitudes, Connection to human psychophysiology and emotional regulation,
Misattribution as a mechanism for externals factors influence, Statistical methodology for
capturing the effects of external influence onto stock market returns, Emotional content of news
articles and their correlation with market dynamics, Social trends and market dynamics: music,
fashion, demographics, Active portfolio management, the source of the systematic
underperformance. Fundamental information and technical analysis, the case for psychological
influence.
Unit – VI
Behavioural Corporate Finance: Behavioural factors and Corporate Decisions on Capital
Structure and Dividend Policy, Capital Structure dependence on Market Timing, Timing of
Good and Bad Corporate News Announcement, Mergers and Acquisitions and the Winner’s
Curse, M&A waves and market timing, IPO under-pricing, Systematic excessive optimism and
Over confidence in managers’ decisions. Company Name and its Market value, Sunk costs and
mental accounting. Evolutionary explanations for behavioural effects, Evidence from
behavioural game theory, Systematic approach to using behavioural factors in corporate
decision making.
Unit – VII
Emotions and Decision – Making: Experimental measurement of risk-related, Measuring Risk,
Emotional mechanisms in modulating risk-taking attitude, Neurophysiology of risk taking.
Personality traits and risk attitudes in different domains, Evolutionary prospective and
emotions. Proximal and ultimate mechanisms framework, Making decisions with “play” and
real money, Modulating altruistic behaviour by utilizing the essentials of the specific proximal
mechanisms, Emotions and rationality, Antonio Damasio and somatic markers.
Books for Study / Reference:
 Behavioral Finance: Psychology, Decision-Making, and Markets", by Ackert and
Deaves.
 Understanding Behavioral Finance by Ackert
 The Psychology of Investing by John R. Nofsinger, Pearson Prentice Hall, (4th Edition)
 What Investors Really Want - Learn the lessons of behavioral Finance, Meir Statman,
McGraw-Hill
 Handbook of Behavioral Finance – Brian R. Bruce
 Behavioral finance - Wiley Finance - Joachim Goldberg, Rudiger von Nitzsch
 Plous, Scott, 1993, The Psychology of Judgment and Decision Making, Ch 10-15
 Shleifer, Andrei, 2000, Are Financial Markets Efficient? Chapter 1 in Inefficient
Markets, Oxford University Press.
 Ackert, L., and R. Deaves, 2010, Behavioral Finance: Psychology, Decision-Making and
Markets, South-Western Cengage Learning, Mason, Ohio.
 Nofsinger, J. R., 2001, Investment Madness, Prentice Hall.
 Mitchell, O. S., and S. P. Utkus, eds., 2004. Pension Design and Structure: New Lessons
from Behavioral Finance (Oxford University Press, New York, New York).
 Shleifer, Andrei (2000): Inefficient Markets: An Introduction to Behavioral Finance,
Oxford University Press, Oxford.
 Montier, James (2002): Behavioural Finance, John Wiley & Sons, New York.
 Plous, S. (1993). The psychology of judgment and decision-making NY: McGrawHill.

Online Sources / Websites:


https://corporatefinanceinstitute.com/resources/knowledge/trading-investing/behavioral-finance/

https://www.behavioralfinance.com/behavioral-finance-resource-overview

https://www.semanticscholar.org/paper/Behavioral-Finance-and-the-Sources-of-Alpha-
Fuller/a0f3196cb5cf3d0be0c028346ac3765c03a924de

Journals for Reference:


1. Journal of Behavioral Finance – Taylor & Francis online
2. International Journal of Behavioural Accounting and Finance – Inderscience Publishers
3. Journal of Behavioral and Experimental Finance - Elsevier

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