Course

Unit 1

Behavioural Finance – introduction- meaning – Definition- nature – Characteristics – scope – significance – traditional vs. behavioural finance – Behavioural Finance: Science or Art – Applications of Behavioural Finance.

Unit 2

Investment Decision Cycle: Judgment under Uncertainty: Cognitive information perception – Peculiarities (biases) of quantitative and numerical information perception – Representativeness – Anchoring – Overconfidence – Herding – Exponential discounting – Hyperbolic discounting.

Unit 3

Expected Utility Theory [EUT] and Rational Thought: Decision making under risk and uncertainty – Expected utility as a basis for decision-making – Theories based on Expected Utility Concept – Investor rationality and market efficiency.

Unit 4

Behavioural Factors and Financial Markets: The Efficient Markets Hypothesis – Fundamental Information and Financial Markets – Information available for Market Participants and Market Efficiency – Market Predictability –The Concept of limits of Arbitrage Model – Asset management and behavioural factors – Active Portfolio Management: return statistics and sources of systematic underperformance – Fundamental information and technical analysis.

Unit 5

Behavioural Corporate Finance – Behavioural factors and Corporate Decisions on Capital Structure and Dividend Policy – Capital Structure dependence on Market Timing – Systematic approach to using behavioural factors in corporate decision-making – External Factors and Investor Behaviour – Mechanisms of the External Factor influence on risk perception and attitudes.

Course Objective:

To understand the behavioural finance principles and their applications in financial decision- making, analyse, and evaluate the impact of cognitive biases on investment choices, market efficiency, and corporate financial decisions.

Course Outcomes:

The students will able:

CO1: To understand the nature, characteristics, and scope of behavioural finance.

CO2: To understand the investment decision cycle and the role of judgment under uncertainty.

CO3: To understand the theories based on the expected utility concept and their implications for investor rationality and market efficiency and apply the concepts of EUT to analyze decision- making processes in financial contexts.

CO4: To understand the efficient markets hypothesis (EMH) and the role of fundamental and technical analysis in financial markets.

CO5: To understand the influence of behavioural factors on corporate decisions regarding capital structure, dividend policy, and market timing.

References:

1. Prasanna Chandra – Behavioural Finance – McGraw Hill
2. Lucy Ackert – Understanding Behavioural Finance – Cengage Learning
3. Singh Ranjit – Behavioural Finance – PHI
4. Shuchita Singh, Shilpa Bahi – Behavioural Finance – Vikas Publishing