NBA 5980 - Behavioral Finance

Fall. 1.5 credits.

M. Huang.

Behavioral Finance is a theory on the irrationality of stock markets. Unlike traditional finance theories, behavioral finance argues that some financial market phenomena can plausibly be understood only under the assumption that some market participants are not fully rational. This course introduces the conceptual framework of behavioral finance and then applies the framework to issues in stock market investment. Topics include: (1) investor psychological bias and irrational trading behavior, and how to overcome our own biases in stock trading; (2) limits of arbitrage and the risk of leveraged convergence trading; (3) stock index market timing (and why market timing is far more important in emerging markets around the world than in the US); (4) typical behavioral finance approaches in constructing outperforming stock portfolios (including value, momentum, size, earnings quality, corporate governance, effects of short-sale constraint, and many other effects); (5) applying behavioral finance concepts to understanding China’s stock market (as an example of emerging equity markets).