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2014/2015  BA-BHAAV2389U  Behavioral Finance

English Title
Behavioral Finance

Course information
Language English
Course ECTS 7.5 ECTS
Type Elective
Level Bachelor
Duration One Semester
Course period Autumn, Second Quarter
Timetable Course schedule will be posted at calendar.cbs.dk
Max. participants 60
Study board
Study Board for BSc in Economics and Business Administration
Course coordinator
  • Bjarne Florentsen - Department of Finance (FI)
Secretary Louise Bruun Christensen - lbc.fi@cbs.dk
Main academic disciplines
  • Finance
Last updated on 13-05-2014
Learning objectives
The course will provide students with an understanding of how human psychology leads to biases and mistakes in the financial decisions of others and potentially of themselves. Through an awareness of these biases and mistakes, students will be better able to mitigate them as finance industry professionals, managers in non-financial firms, and investors of their own money.
Objectives:
To attain the top grade, students are required to have a good understanding of the major concepts and issues in behavioral finance. This includes the ability to:
• Identify and apply psychological concepts to financial markets and financial decision-making.
• Compare and contrast behavioral and non-behavioral explanations of financial phenomena.
• Apply the psychological and behavioral finance concepts to new problems outside the finance discipline.
Course prerequisites
The course is especially recommended for students in the final year of their bachelor studies with a strong interest in finance and financial decision making. The course requires knowledge of basic financial theory, as acquired for example in a standard corporate finance course.
Examination
4 hour written sit-in exam:
Exam ECTS 7,5
Examination form Written sit-in exam
Individual or group exam Individual
Assignment type Written assignment
Duration 4 hours
Grading scale 7-step scale
Examiner(s) One internal examiner
Exam period Winter Term
Aids allowed to bring to the exam Limited aids, see the list below and the exam plan/guidelines for further information:
  • Allowed calculators
  • Allowed dictionaries
Make-up exam/re-exam
Same examination form as the ordinary exam
If the number of registered candidates for the make-up examination/re-take examination warrants that it may most appropriately be held as an oral examination, the programme office will inform the students that the make-up examination/re-take examination will be held as an oral examination instead.
Course content and structure

The objective of the course “Behavioural Finance” is to provide bachelor students with a broad understanding of how human psychology affects financial decisions, with specific reference to the impact on financial markets, corporate finance, and personal financial decisions.

There are two sides to the course. The "soft" side concerns the psychology of decision making. The "hard" side concerns modern empirical finance, as used in many hedge fund strategies, for example. The teaching of both sides focuses more on intuition and understanding rather than technical skills. The teaching is research-based, drawing on findings from the current academic literature.
Teaching methods
The teaching is interactive and students are expected actively to participate in class discussions.
Further Information
Changes in course schedule may occur.
Monday 11.40-14.15, week 44-50.
Thursday 11.40-14.15. week 44-48.
Expected literature

The literature is indicative.
Main text:

Ackert, Lucy, and Richard Deaves, 2009, Behavioral Finance: Psychology, Decision-Making, and Markets. South-Western Cengage Learning

Supplementary readings:

Fox, J., 2009, The Myth of the Rational Market: A History of Risk, Reward, and Delusion on Wall Street. Harper Business, New York

Shrefrin, Hersh, 2000, Beyond Greed and Fear: Understanding Behavioral Finance and the Psychology of Investing. Oxford University Press

Thaler, Richard H., and Cass R. Sunstein, 2009, Nudge: Improving Decisions About Health, Wealth, and Happiness. Yale University Press

Recommended articles:

Baker, Malcolm, and Jeffrey Wurgler, 2007, Investor Sentiment in the Stock Market, Journal of Economic Perspectives 21(2): 129–151

Barber, Brad, and Terrance Odean, 2001, The Internet and the Investor, Journal of Economic Perspectives, 15(1): 41-54

Benartzi, Shlomo and Richard H. Thaler, 2007, Heuristics and Biases in Retirement Savings Behavior, Journal of Economic Perspectives 21(3): 81–104

Caginalp, Gunduz, David Porter, and Vernon Smith, 2001, Financial Bubbles: Excess Cash, Momentum, and Incomplete Information, Journal of Behavioral Finance, 2(2): 80-99

Doya, Kenji, 2008, Modulators of decision making, Nature Neuroscience 11(4): 410-416

Federal Reserve Bank of San Francisco, 2008, The Subprime Mortgage Market: National and Twelfth District Developments, 2007 Annual Report: 6-17

Financial Crisis Interviews, 2011, Various (to be circulated)

Garber, Peter M., 1990, Famous First Bubbles, Journal of Economic Perspectives, 4(2): 35-54

Hong, Harrison, and Jeremy C. Stein, 2007, Disagreement and the Stock Market, Journal of Economic Perspectives 21(2): 109–128

Hvidkjaer, Soeren, 2008, Small Trades and the Cross-Section of Stock Returns, Review of Financial Studies 21(3): 1123–1151

Kahneman, Daniel, and Dan Lovallo, 1993, Timid Choices and Bold Forecasts: A Cognitive Perspective on Risk Taking, Management Science 39(1): 17-31

Loewenstein, George, and Richard Thaler, 1989, Anomalies: Intertemporal Choice, Journal of Economic Perspectives, 3(4): 181-193

Malmendier, Ulrike, and Geoffrey Tate, 2008, Who makes acquisitions? CEO overconfidence and the market's reaction, Journal of Financial Economics 89(1): 20-43

McClure, Samuel M., David I. Laibson, George Loewenstein, and Jonathan D. Cohen, 2004, Separate Neural Systems Value Immediate and Delayed Monetary Rewards, Science 306(5695): 503 – 507

Nocera, Joe, 2008, The Reckoning: As Credit Crisis Spiraled, Alarm Led to Action, New York Times, 1 October 2008

Odean, Terrance, 1999, Do Investors Trade Too Much? American Economic Review, 89: 1279-1298

Peston, Robert, 2010, Regulators agree 7% capital ratio for banks, BBC News, 9 September 2010: http:/​/​www.bbc.co.uk/​blogs/​thereporters/​robertpeston/​2010/​09/​regulators_agree_7_capital_rat.html

Platt, Michael L., and Scott A. Huettel, 2008, Risky business: the neuroeconomics of decision making under uncertainty, Nature Neuroscience, 11(4): 398-403

Reimers, Stian, Elizabeth A. Maylor, Neil Stewart, and Nick Chater, 2009, Associations between a one-shot delay discounting measure and age, income, education and real-world impulsive behavior, Personality and Individual Differences, 47(8): 973-978

Shiller, Robert J., 2003, From Efficient Markets Theory to Behavioral Finance, Journal of Economic Perspectives 17(1): 83-104

Siegel, Jeremy J., and Richard H. Thaler, 1997, Anomalies: The Equity Premium Puzzle, Journal of Economic Perspectives, 11(1): 191-200

Sorkin, Andrew R., 2008, Lehman Files for Bankruptcy: Merrill Is Sold, New York Times, 14 September 2008

Thaler, Richard H., 1999, Mental Accounting Matters, Journal of Behavioral Decision Making 12: 183-206

Thaler, Richard H., and Eric J. Johnson, 1999, Gambling with the House Money and Trying to Break Even: The Effects of Prior Outcomes on Risky Choice, Management Science 36(6): 643-660

Tversky, Amos, and Daniel Kahneman, 1974, Judgment under Uncertainty: Heuristics and Biases, Science 185(4157): 1124-1131
Last updated on 13-05-2014