INTRODUCTION TO BEHAVIOURAL FINANCE
Portfolio Theory, Capital Asset Pricing Theory, Efficient Market Hypothesis and similar other theories in the disciple of finance brought an objective perspective to finance and enabled expressing of individual investment preferences in mathematical, quantitative, rational and logical terms. As per these theories and models, is is assumed that individuals made rational preferences while making investment decisions. This principle of rationality formed the conerstone of traditional finance. However, these assumptions of traditional finance have been criticized from the very beginning which was on the ground that human as social beings have unique values and make decisions in accordance with their emotions and behaviour. These criticisms led to the evolution of an interdisciplinary science called Behavioural Finance.
Behavioural finance is an area of study focused on how psychological influences can affect market outcomes. Behavioural finance can be analyzed to understand different outcomes across a variety of sectors and industries. One of the key aspects of behavioural finance studies is the influence of psychological biases.
COURSE CODE : BFSC403
SEMESTER : IV
DEPARTMENT: B.VOC BANKING AND FINANCIAL SERVICES
- To make students understand the concept of behavioural finance
- To make students understand its evolution and theories
- To make the students aware of various biases that influences decision making process.
The students will be able to understand the traditional and behavioural finance perspectives on investor decision making. This paper discusses the effect that cognitive limitations and bounded rationality may have on investment decision making. It also compares traditional and behavioural finance perspectives on portfolio construction and the behaviour of capital markets. Thus, students get an understanding of human psychology on investment decisions.