A Survey of Behavioral Finance

77 Pages Posted: 4 Oct 2002  

Nicholas Barberis

Yale School of Management; National Bureau of Economic Research (NBER)

Richard H. Thaler

University of Chicago - Booth School of Business; National Bureau of Economic Research (NBER)

Multiple version iconThere are 2 versions of this paper

Date Written: September 2002

Abstract

Behavioral finance argues that some financial phenomena can plausibly be understood using models in which some agents are not fully rational. The field has two building blocks: limits to arbitrage, which argues that it can be difficult for rational traders to undo the dislocations caused by less rational traders; and psychology, which catalogues the kinds of deviations from full rationality we might expect to see. We discuss these two topics, and then present a number of behavioral finance applications: to the aggregate stock market, to the cross-section of average returns, to individual trading behavior, and to corporate finance. We close by assessing progress in the field and speculating about its future course.

Keywords: behavioral finance, market efficiency, limits to arbitrage, psychology, investor behavior

JEL Classification: G11, G12, G30

Suggested Citation

Barberis, Nicholas and Thaler, Richard H., A Survey of Behavioral Finance (September 2002). Available at SSRN: https://ssrn.com/abstract=327880 or http://dx.doi.org/10.2139/ssrn.327880

Nicholas Barberis (Contact Author)

Yale School of Management ( email )

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National Bureau of Economic Research (NBER)

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Cambridge, MA 02138
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Richard H. Thaler

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

University of Chicago - Booth School of Business ( email )

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Chicago, IL 60637
United States
773-702-5208 (Phone)
773-702-0458 (Fax)

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