A Survey of Behavioral Finance

Journal of Banking and Finance in Austria, Vol. 1, No. 2, pp. 1-22, 2004

25 Pages Posted: 3 Sep 2010 Last revised: 21 Mar 2012

See all articles by Othmar Manfred Lehner

Othmar Manfred Lehner

Hanken School of Economics - Department of Accounting; University of Applied Sciences Upper Austria; Middlesex University of London

Date Written: February 1, 2004


Beginning in the early 1970`s, the Efficient Market Hypothesis (EMH henceforth) became very dominant in academic circles trying to understand the rules of return in the equity market. After a long period of successes, faith in this Hypothesis was gradually eroded by the discovery of several anomalies. The last decades now showed immense research efforts to find new models accurately predicting market behavior. These efforts build the foundation for what is called “Behavioral Finance”. During all this time researchers have identified two major reasons why the EMH fails to deliver correct results in so many cases.

While the first is called “Limits to arbitrage” and it shows why even well informed, completely rational investors can be limited in their ability to use market options; 
the second relates to an application of behavioral psychology on individual investors, cataloguing the kinds of deviations from full rationality in investment decisions.

In this paper I will present a survey of this huge, vastly expanding field of research by summarizing working papers recently published at the “National Bureau of Economic Research”, as well as including foundational principles and recent journal articles from renowned magazines.

Keywords: Behavioral Finance, Behavioural Finance, Irrational Markets, Limits to Arbitrage, Psychology, Volatility, Investors Beliefs, Efficient Market Hypothesis, Demand Curves, Survey, Literature Review

JEL Classification: D52

Suggested Citation

Lehner, Othmar Manfred, A Survey of Behavioral Finance (February 1, 2004). Journal of Banking and Finance in Austria, Vol. 1, No. 2, pp. 1-22, 2004. Available at SSRN: https://ssrn.com/abstract=1669967

Othmar Manfred Lehner (Contact Author)

Hanken School of Economics - Department of Accounting ( email )

FI-00101 Helsinki

University of Applied Sciences Upper Austria ( email )

Wehrgrabengasse 1-3
Steyr, Upper Austria 4400

Middlesex University of London ( email )

The Burroughs
London, NW4 4BT
United Kingdom

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