NRE 5340 - Doctoral Seminar in Behavioral Finance

2 credits.

This is a research oriented course aimed at Ph.D. students. MBA students who register must be comfortable with this focus.

M. Huang.

Behavioral finance argues that many facts about asset prices, investor behavior, and managerial behavior are best understood in models where at least some agents are not fully rational. This course surveys recent advances in this field, and suggests directions for future research.The first module of the course, on limits to arbitrage, responds to the classic criticism of behavioral finance, namely that smart investors will quickly reverse any dislocations caused by irrational investors. The second module tries to understand what specific forms of irrationality may be most important in finance: we review the evidence psychologists have gathered on mistakes people make when forming beliefs, and on their preferences.The remainder of the course considers applications of behavioral finance to a number of topics: to asset pricing, and in particular to understanding the aggregate stock market, the cross-section of average returns, and closed-end funds; to individual investor portfolio choice and trading behavior; and to features of corporate finance, such as security issuance, capital structure, dividend policies, and mergers.