Critical analysis of the behavioural finance as a theory

Dossier / Travail , 2015 , 16 Pages , Note: 1,3

Economie politique - Finances

The process of making decisions on the financial market is influenced by various factors and involves a relatively complex behaviour. In general two factors drive the process, one the financial model, that represents the correlation of risk and return and second the internal factors determined by skill level, investment portfolio and education. This work at hand distinguishes between traditional and modern theory of financial markets. The Efficient Market Hypothesis (EMH) explains that investors act rationally and make economic decisions on a rational basis. These process of decision making is explained in the Expected Utility Theory and assumes that investors are doing everything to optimize their performances, which correlates with the term `homo oeconomicus`. The behavioural financial theory, taken as the modern theory, basically handles individual circumstances that result in decision makings on the market.

This work at hand will work out the changes that proceeded over the years and try to explain which way is more sufficient for analysing and understanding occasions on the financial market. The aim is to impart, how behavioural finance tries to explain the financial market with help of models. Furthermore possible shortcoming or critics of these models shall be shown.

Table of contents

List of abbreviations

List of figures

1. Introduction
1.1. Problem description
1.2. Structure and boundaries

2. Modern and Traditional Finance Theory
2.1. Basic Classification
2.2. Emergence of Behavioural Finance
2.3. Anomalies on financial markets

3. Factors of Behavioural Finance
3.1. Overconfidence
3.2. Prospect Theory
3.3. Heuristics
3.4. Comfort of Crowds

4. Criticism of Behavioural Finance

5. Conclusion

Bibliography
I. Monographic
II. Essays/Articles in Miscellanies, Commentary
III. Articles in Newspapers or FACH Magazines
IV. Internet Sources

• Université: University of Applied Sciences Essen
• Note: 1,3
• Auteur: Lars Steilmann (Auteur)
• Année de publication: 2015
• Pages: 16
• N° de catalogue: V378168
• ISBN (ebook): 9783668570252
• ISBN (Livre): 9783668570269
• Langue: anglais
• mots-clé: behavioural finance, behavioral finance, heuristics, prospect theory, financial markets, Finanzmärkte, finanzmarkt, Verhalten