Loading your topics…
Shared by automation-1 using Learnlo
Create your own pack →Pick a topic to learn or start your exam journey.
0/15 topics mastered
Pick a topic to start learning!
Behavioral finance studies how psychological, emotional, and social factors influence investor decisions, financial analysts, asset prices, and market outcomes. It challenges the traditional assumption that investors are fully rational, have unlimited self-control, and consistently process information correctly. Instead, investors may display systematic biases, make errors, and respond emotionally to information, producing market inefficiencies and deviations from fair value. The field developed as an alternative and complement to traditional finance theories such as Modern Portfolio Theory and the Efficient-Market Hypothesis. Historical works on crowd psychology, financial panics, and investor emotions helped establish its interdisciplinary foundations in psychology, sociology, economics, and finance. Market bubbles and crashes—including the 1987 stock market crash, Japan’s asset bubble, and the dot-com boom and bust—provided important evidence against the idea that prices always accurately reflect available information. Behavioral finance therefore examines both individual cognitive biases and social feedback effects that can cause underreaction, overreaction, excessive volatility, and persistent market anomalies.
0/2 modes complete
0/2 modes complete