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Module

NBS8200 : Behavioural Finance

  • Offered for Year: 2021/22
  • Module Leader(s): Professor Bartosz Gebka
  • Owning School: Newcastle University Business School
  • Teaching Location: Newcastle City Campus
Semesters
Semester 2 Credit Value: 10
ECTS Credits: 5.0

Aims

Behavioural finance (BF) is an unorthodox area of finance that assumes financial markets are fundamentally inefficient. Advocates of BF believe that investor behaviour and decision making are driven by aspects of personal and market psychology. This course will involve an introduction to BF followed by a detailed analysis of the main issues. At the conclusion of the module students should be able to demonstrate:
– an advanced understanding of the main concepts in BF,
– a comprehensive familiarity with the latest empirical research developments in the BF subject area,
– a critical understanding of the limits of BF,
– the ability to undertake self-directed empirical research in this area,
– and to be able to apply empirical methods to understand and explain important issues in the area of BF.

Outline Of Syllabus

1. Introduction: What is ‘traditional’ view in finance, challenges of the traditional view, behavioural finance as an alternative approach

Part 1: The Traditional View
2. ‘Traditional’ finance theory: utility analysis, portfolio theory, asset pricing models, arbitrage, rational stock valuation
3. Efficient market hypothesis: theoretical underpinnings of the EMH, empirical evidence, irrational investors and market efficiency

Part 2: Limits to Arbitrage
4. Noise trader risk and arbitrage: risk due to noise trader activities, limited arbitrage and its consequences for the EMH
5. Investor sentiment and closed-end funds: irrational investors and their systematic impact on stock prices, empirical evidence
6. Agency theory and limits of arbitrage: agency theory and fund managers’ behaviour, limited arbitrage and the consequences for stock prices

Part 3: Irrational Investors and Managers
7. Investor psychology: rational behaviour, deviations from rationality in investor’s preferences and beliefs, prospect theory and cognitive biases
8. A model of investor sentiment: investment decisions driven by representativeness and conservatism, deviations from market efficiency
9. Behavioural corporate finance: managerial decision making and exploitation of market inefficiencies, managers and investors as irrational individuals

Part 4: Applications
10. How is the knowledge of behavioural finance helping us to better deal with money? Pensions decisions, advising your clients, portfolio management including technical trading

Teaching Methods

Teaching Activities
Category Activity Number Length Student Hours Comment
Scheduled Learning And Teaching ActivitiesLecture151:0015:00N/A
Guided Independent StudyAssessment preparation and completion132:0032:00N/A
Guided Independent StudyDirected research and reading125:0025:00N/A
Scheduled Learning And Teaching ActivitiesSmall group teaching31:003:00N/A
Guided Independent StudyIndependent study125:0025:00N/A
Total100:00
Teaching Rationale And Relationship

Lectures provide the basic structure of the theories and empirical evidence that are introduced and an overview of the current research issues.

Seminars provide an opportunity to discuss and enhance understanding of the empirical and theoretical aspects of the module.

Assessment Methods

The format of resits will be determined by the Board of Examiners

Other Assessment
Description Semester When Set Percentage Comment
Essay1M100Written essay 2000 word limit.
Formative Assessments
Description Semester When Set Comment
Prob solv exercises2Mto be discussed in seminars
Research proposal2Moptional consultation on assignment draft
Prob solv exercises2Mto be discussed in seminars
Prob solv exercises2Mto be discussed in seminars
Assessment Rationale And Relationship

The essay tests understanding of a chosen topic in BF in the wider context of the module, and should include both theoretical/ analytical considerations as well as empirical analyses in the field.

Reading Lists

Timetable