Behavioral Finance Flashcards

1
Q

study of influence of psychology on the behavior of investors or financial analysts

A

Behavioral Finance

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
2
Q

Investors are not always_______, have _____ to their ____-_______, and are influenced by their own _______

A

rational, limits, self-control, biases

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
3
Q

“the study of the influence of psychology on the behavior of financial practitioners and subsequent effects on the market”

A

Sewell (2001)

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
4
Q

“application of psychology to financial behavior— the behavior of investment practitioners”

A

Shefrin (1999)

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
5
Q

“study of human interprets and acts on information to make informed investment decisions”

A

Lintner G. (1998)

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
6
Q

“seeks to understand and predict systematic financial market implications of psychology decision process”

A

Olsen R. (1998)

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
7
Q

“combining twin discipline of psychology and economics to explain why and how people make seemingly irrational or illogical decisions when they save, invest, spend and borrow money”

A

Belsky and Gilovich (1999)

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
8
Q

combining twin discipline of psychology and economics to explain why and how people make seemingly irrational or illogical decisions when they save, invest, spend and borrow money

A

Behavioral Economics

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
9
Q

what are the twin discipline

A

Psychology and economics

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
10
Q

“science regarding how psychology influences financial market” “individuals are affected by psychology factors like cognitive biases in their decision-making, rather than being rational and wealth maximizing”

A

W. Forbes (2009)

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
11
Q

“challenges the theory of market efficiency by providing insights into why and how market can be inefficient due to irrationality in human behavior”

A

M. Sewell (2007)

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
12
Q
  1. Investors’ biases are influencing their choices
  2. Experience and heuristics help in making complex decisions
  3. The mind process available information matching it with personal preferences
A

M. Schindler (2007)

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
13
Q

taken from the field of psychology and finance, which tries to understand various ________ observations in stock market with better explanations.

A

puzzling

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
14
Q

new area of financial research, attempts to explain market ______ and other market activity as well as proposes ________-based theories to explain ___________

A

Anomalies, psychology, stock market anomalies

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
15
Q

discipline of behavioral economics, ultimately ______ the investing decisions of market players

A

shaping

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
16
Q

contradicts the theory of _______ finance. Human beings are _____ and _____ at times, brings forward the consequences of personal biases over investment decisions

A

traditional, normal, irrational

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
17
Q

Foundations of Behavioral Finance

A

Psychology
Sociology
Finance

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
18
Q

5 Foundation Blocks of Standard Finance

A
  1. People are rational
  2. People construct portfolios as described by mean-variance portfolio theory
  3. People save and spend as described by standard life-cycle theory
  4. Expected returns of investments, standard asset pricing theory
  5. Markets are efficient, price equals value of all securities and markets are hard to beat
19
Q

include only high expected returns and low risk

A

mean-variance portfolio theory

20
Q

it is easy to identify and implement the right way to save and spend

A

standard life cycle theory

21
Q

differences in expected returns are determined only by differences in risk

A

standard asset pricing theory

22
Q

Second Generation 5 Foundation Blocks of Behavioral Finance

A
  1. People are normal
  2. People construct portfolio based on behavioral finance portfolio theory
  3. People save and spend according to behavioral life-cycle theory
  4. Expected returns of investment, as described by behavioral asset pricing theory
  5. Markets are inefficient in a way that price is equals to the value in them but efficient in a way that they are hard to beat
24
Q

Extend beyond high expected returns and low risks, includes social responsibility and social status

A

Behavioral Finance Portfolio Theory

25
Impediments make it difficult to save and spend in the right way
Behavioral life-cycle theory
26
differences in expected returns are determined by more than just differences in risk
Behavioral asset pricing theory
27
Psychology of the stock marker by Selden
1912, Informal Origin
28
Study of Cognitive Dissonance by Fessinger
1956
29
Discussion of Risk Aversion and the utility function by Pratt
1964
30
Official Start of Behavioral Finance
1979
31
Author of Prospect Theory: A study of Decision Making under Risk
Daniel Kahneman and Amos Tversky
32
willing to take on more risk in the face of losses, but become more afraid of risk when it comes to protecting gain
loss averse
33
Bedrock of Traditional Finance
Notion of rational man— rational expectations wealth maximizer
34
View money as being in separate and disparate pools depending on function
Richard Thaler
35
Founding Fathers of Behavioral Finance
Daniel Kahneman, Amos Tversky, Richard Thaler
36
works of Founding Fathers of Behavioral Finance
Biases Literature
37
Scope of Behavioral Finance
Investors, Corporations, Markets, Regulators, Educators
38
Behavioral Finance Concepts
Mental Accounting Herd Behavior Emotional Gap Anchoring Self-attribution
39
prospenity of the people to allocate money for specific purposes
Mental Accounting
40
people tend to mimic the financial behavior of the majority of the Herd
Herd Behavior
41
decision making based on extreme emotions or emotional strains
Emotional Gap
42
attaching a spending level to a certain reference
Anchoring
43