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FPS - Chapter 3 Behavioural Finance
Fichas del conjunto (13)
- 1Behavioral Finance - DefineApplication of psychology to understand human behavior in finance or investing
- 2Micro vs MacroBehavioural Finance Micro (BFMI) -> examines the behavioral biases of individual investors. Compares irrational investors to rational investors envisioned in classic Econ theory known as "Homo Economics" (rational economic human being)
Behavioural Finance Macro (BFMA) -> Irregularities in the overall market that contradict the efficient market hypothesis. - 3Rational Economic Individual vs. Behavioural Biased IndividualRational / Homo Econ Indi -> Perfect Rationality, Perfect Self-Interest, Perfect Information
vs. - 4Standard Finance vs. Behavioural FinanceStandard -> rules about how investors should behave rather than by principles describing how they actually behave.
Behavioral Finance -> identifies and learns from individual investors - 5Efficient Markets vs. Irrational MarketsWeak Form - All past market prices and data are fully reflected in current securities prices. Technical analysis is of little or no value
Semi-Strong Form - All publicly available information is fully reflected in the current stock price. No fundamental analysis and technical analysis are of no value.
Strong Form - all information is fully reflected in current stock prices. Including insider trading - 6Market Anomalies - 3 Types1) Fundamental -> Stock price compared to companies assessment of intrinisic value.
2) Technical Anomalie -> rely on weak market theory. trends of data can help predict the future stock price.
3) Calendar Anomalie -> January effect. Stocks move higher during certain periods of time in the year. - 74 Fundamental Characteristics of a successful client relationship1) advisors clearly understand the client's financial goals
2) advisor uses a structured, consistent approach to advising the client
3) the advisor delivers what the client expects
4) both the client and advisor benefit from the relationship - 8A client expects 2 main things from his advisor1) an understanding of the client's objectives based on a needs assessment
2) Investment returns that are consistent with those objectives - 9Define HeurusticsEfficient rules of thumb, or beliefs, judgements or preferences
- 10Differences between Cognitive and Emotional BiasesCognitive Bias -> informational or memory errors that are common to all human being. Example: Anchoring - clients get stuck on a certain stock price.
Emotional Biases -> come from emotional or intelectual predisposiytion toward a certain judgement . Example - endowment, loss aversion and self control - 1114 Examples of Cognitive Biases1) Overconfidence
2) Representativeness
3) Anchoring and Adjustments
4) Cognitive Dissonance
5) Availability
6) Self-Attribution
7) Illusion of Control
8) Conservatism
9) Ambiguity Aversion
10) Mental Accounting
11) Confirmation
12) Hindsight
13) Recency
14) Framing - 126 examples of Emotional Biases1) Endowment
2) Self-Control
3) Optimism
4) Loss Aversion
5) Regret Aversion
6) Status Quo - 13Men vs. WomanMen are 1/3 more risk tolerant than women.
Información
- Descripción
- Behavioural Finance
- Creado por
- David Skillen · feb 2019
- Actualizado
- 26 feb 2019
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