Unit information: Behavioural Finance in 2019/20

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 - Business School
Faculty	Faculty of Social Sciences and Law

Description including Unit Aims

The purpose of the unit is to provide an understanding of psychological biases which affect financial decision-making and to consider the related empirical evidence.

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

The second part of the unit will focus on the implications of behavioural biases for Corporate Finance. For example, it will cover topics such as security issuance and market timing, dividend policy decisions and 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. Critically review the Efficient Markets Hypothesis and associated empirical irregularities.
2. Describe the nature and role of investor biases in financial decision making. Apply this knowledge to personal investment decisions.
3. Recognize that systematic biases may be exploited to make profit.
4. Learn how to incorporate loss aversion and ambiguity aversion in a standard (rational) utility maximisation framework.
5. Assess and judge the merits of the behavioural assumptions.

Teaching Information

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

Assessment Information

Assessment Details

2-hour exam (100%) (Mix of mathematical and essay-type questions).

Essay-type questions will assess breadth of knowledge (from readings which are assigned over and above lecture notes). This is test the intended learning outcomes 1, 2, 3, and 5.

The mathematical questions will assess the understanding of the inner workings of the models that are taught in the unit. This will test the intended learning outcomes 4 and 5.

Reading and References

Reading and References

Textbooks:

Thaler, R. (2016) Misbehaving: The making of behavioural economics, Norton.

Burton, E. and Shah, S. (2013) Behavioural finance: Understanding the social, cognitive and economic debates, Wiley.

Ackert, L.F. and Deaves, R. (2009) Behavioural finance: Psychology of decision making and markets, South-Western.

Shefrin, H. (2007) Behavioural corporate finance: decisions that create value, McGraw-Hill.

Damodaran, (2010) Applied corporate finance, John Wiley & Sons.

Malkiel, B. (2008) A random walk down wall street: The time-tested strategy for successful investing, Norton.