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Unit information: Behavioural Finance in 2016/17

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Unit name Behavioural Finance
Unit code EFIMM0016
Credit points 15
Level of study M/7
Teaching block(s) Teaching Block 2 (weeks 13 - 24)
Unit director Dr. Sonny Biswas
Open unit status Not open
Pre-requisites

None

Co-requisites

None

School/department School of Accounting and Finance
Faculty Faculty of Social Sciences and Law

Description

The purpose of the module is to provide an understanding of psychological biases which affect financial decision-making.

The first part of the module will give a brief introduction to the general models in Behavioural Finance (Prospect Theory, Ambiguity Aversion and Herding).

In the second half of the module the focus will be on implications of behavioural biases for Corporate Finance. For example:

1. Security Issuance and Market timing

2. Why firms issue dividends despite negative tax implications?

3. Wealth Destruction in Mergers and Acquisitions arising from managerial overconfidence

Intended learning outcomes

By the end of the unit a student is expected to:

  1. Understand the Efficient Markets Hypothesis and associated empirical irregularities;
  2. Understand the nature and role of investor biases in financial decision making;
  3. Learn how to incorporate loss aversion and ambiguity aversion in a standard (rational) utility maximization framework;
  4. Understand how behavioural assumptions affect analysis in corporate finance.

Teaching details

Ten 2-hour lectures. Five 1-hour seminars.

Assessment Details

1. In class presentations, students will discuss the real world implications of deviations from the standard framework. Students are split in groups and each group is assigned a research paper to discuss.

2. In the exam, both theories and applications of ILOs will be tested in greater detail. There will be equal focus on Asset Pricing and Corporate Finance topics.

Reading and References

Behavioural Finance: Psychology of Decision Making and Markets, Ackert and Deaves, 2009

Behavioural Corporate Finance: Decisions that Create Value, Shefrin, 2007

Applied Corporate Finance, Damodaran, 2011

A Random Walk Down Wall Street: the Time-Tested Strategy for Successful Investing, Burton and Malkiel, 2007

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