This 10 credit module aims to introduce students to the most contemporary finance subject of behavioural finance. It expands the scope of financial markets and establish some controversies in relation to the understanding and interpretation of financial behaviour and market dynamics, in particular the inadequacies of the efficient markets hypothesis and the rise of behavioural finance as an alternative paradigm. 

Prerequisite Module: MA2800 Finance II: Investment Management

• Form the knowledge of concepts and fundamental principles of behavioural finance
• Explain behavioural paradox and various scenario such investment sentiment, inefficiency etc.
• Establish systematic understanding of EMH and arguments from behaviour finance perspective
• Provide efficient debate on contemporary finance issues such as crises, by utilizing behavioural finance principles

22 fifty-minute lectures. Some handouts will be provided in hard copy or via Learning Central, but students will be expected to take notes of lectures.

Students are also expected to undertake at least 50 hours private study including preparation of worked solutions for tutorial classes.

Skills:

An ability to critically examine the two main principles of financial markets (efficient market or behaviour driven market); skills to apply principles to form discussions and debates on contemporary finance issues.

Transferable Skills:

Communication skills;
Analytical skills;
Skills of forming effective arguments;
Problem solving skills;
Presentation skills

The summative assessments include two parts. The first part is by means of one group presentation (50 min presentation + 10 min Q & A) on a specific topic. The presentation slides and notes are required for submission to be marked. Not only the academic knowledge and understanding but also the presentation/debate skills etc. will be given assessment weights. Feedback will be given to students at the end of presentation and debate.  

The second component of summative assessment is the group written essay on the topic which has been presented. Students need to further develop the presentation slides and notes into a formal essay. This gives students the opportunity to demonstrate their overall achievement of learning outcomes and team work skills.  It also allows them to give evidence of the higher levels of knowledge and understanding required for above average marks.

Introduction to Behavioural Finance
The Efficient Market Hypothesis
Expected Utility Theory: axioms, risk aversion, Allais paradox and St. Petersburg paradox
Psychological research and irrational choices
Kahneman & Tversky’s Prospect theory
Limits to arbitrage and inefficiency
Investment sentiment
Close-end fund puzzle
Financial crises: EMH or Behavioural?

Shleifer, A. 2000. Inefficient Markets: an introduction to behavioural finance. Oxford: Oxford University Press. eBook available at: http://bit.ly/2vKd6bu

Shefrin, H. 2007. Beyond Greed and Fear: understanding behavioural finance and the psychology of investing. Oxford: Oxford University Press. eBook available at: http://bit.ly/2MRl6Ob

Kahneman, D. and Tversky, A. 2000. Choices, Values and Frames: a collection of theoretical and empirical work on Prospect theory. Cambridge: Cambridge UP.

Kahneman, D. 2011. Thinking,Fast and Slow. London: Allen Lane.

Forbes, W. 2009. Behavioural Finance. Chichester: Wiley.

Thaler, R.H. 2005. Advances in Behavioral Finance, Volume 2. Princeton: Princeton University Press.

Camerer, C.F. et al. 2004. Advances in Behavioural Economics. Princeton: Princeton University Press.