Behavioral Finance

HANDBOOK OF JUDGMENT AND DECISION MAKING, D.J. Koehler, N. Harvey, eds., pp. 527-546, Blackwell Publishers, 2004

Posted: 1 Dec 2005

See all articles by Markus Glaser

Markus Glaser

Ludwig Maximilian University of Munich (LMU) - Faculty of Business Administration (Munich School of Management)

Martin Weber

University of Mannheim - Department of Banking and Finance

Markus Noeth

University of Hamburg

Abstract

Behavioral finance as a subdiscipline of behavioral economics is finance incorporating findings from psychology and sociology into its theories. Behavioral finance models are usually developed to explain investor behavior or market anomalies when rational models provide no sufficient explanations. To understand the research agenda, methodology, and contributions, this survey reviews traditional finance theory first. Then, this survey shows how modifications (e.g. incorporating market frictions) can rationally explain observed individual or market behavior. In the second section, the survey will explain the behavioral finance research methodology - how biases are modeled, incorporated into traditional finance theories, and tested empirically and experimentally- using one specific subset of the behavioral finance literature, the overconfidence literature.

Keywords: Behavioral Finance, Overconfidence, Investor Behavior

JEL Classification: D8, G1

Suggested Citation

Glaser, Markus and Weber, Martin and Noeth, Markus, Behavioral Finance. HANDBOOK OF JUDGMENT AND DECISION MAKING, D.J. Koehler, N. Harvey, eds., pp. 527-546, Blackwell Publishers, 2004. Available at SSRN: https://ssrn.com/abstract=857084

Markus Glaser (Contact Author)

Ludwig Maximilian University of Munich (LMU) - Faculty of Business Administration (Munich School of Management) ( email )

Schackstra├če 4
Munich, 80539
Germany

Martin Weber

University of Mannheim - Department of Banking and Finance ( email )

D-68131 Mannheim
Germany
+49 621 181 1532 (Phone)
+49 621 181 1534 (Fax)

Markus Noeth

University of Hamburg ( email )

Chair of Banking and Behavioral Finance
WiSo
Hamburg, 20146
Germany
+49-40-42838 3337 (Phone)
+49-40-42838 5512 (Fax)

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