FACULTY OF BUSINESS

Department of International Trade and Finance

ITF 413 | Course Introduction and Application Information

Course Name
Introduction to Behavioral Finance
Code
Semester
Theory
(hour/week)
Application/Lab
(hour/week)
Local Credits
ECTS
ITF 413
Fall/Spring
3
0
3
5

Prerequisites
None
Course Language
English
Course Type
Elective
Course Level
First Cycle
Mode of Delivery -
Teaching Methods and Techniques of the Course Discussion
Case Study
Q&A
Lecture / Presentation
Course Coordinator
Course Lecturer(s)
Assistant(s)
Course Objectives The purpose of this course is to introduce the student to the new field of behavioralfinance. In the past, one of the dominant assumptions in finance was that all investors acted rational and the markets were perfectly efficient. Because of advances in behavioral finance this view is being increasingly called into question. New work in thisarea has major implications for financial decisionmakers.
Learning Outcomes The students who succeeded in this course;
  • will be able to apply these concepts in financial decision making.
  • will be able to explain how behavioral characteristics of individuals or firms affect their investment decisions.
  • will be able to analyze the influence of investor psychology on risk tolerance.
  • will be able to probe how psychological profiling of individuals affect their investment behavior.
  • will be able to explain the major concepts and issues in behavioral finance.
Course Description Behavioral finance is the application of psychology to investment behavior. It explores how various behavioral concepts such as behavioral frames, biases and heuristics impact individual investors’ decisions, market dynamics and corporate decision makings.

 



Course Category

Core Courses
Major Area Courses
Supportive Courses
X
Media and Management Skills Courses
Transferable Skill Courses

 

WEEKLY SUBJECTS AND RELATED PREPARATION STUDIES

Week Subjects Related Preparation
1 Introduction to Behavioral Finance
2 Utility Theory
3 Efficient Market Theory
4 Loss Aversion (Disposition Affect) *Shefrin and Statman (1985) The Disposition to Sell Winners Too Early and Ride Losers Too Long: Theory and Evidence. Journal of Finance, 15:779-790 *Odean (1998) Are Investors Reluctant to Realize Their Losses. Journal of Finance 53 (5), 1775–1798. *Weber, M., and C. F. Camerer, 1998, “The disposition effect in securities trading: An experimental analysis,” Journal of Economic Behavior and Organization 33: 167-84 *Mark Grinblatt, Bing Han, 2002 “The Disposition Effect and Momentum” Working Paper 8734
5 Beliefs, Biases and Heuristics (Representativeness, Availability, Attribution, Hindsight) *Poteshman (2001). Underreaction, Overreaction, and Increasing Misreaction to Information in the Options Market. Journal of Finance, LVI(3), 851-876. *Grether, D. M., 1980, “Bayes’ rule as a descriptive model: The representativeness heuristic,” Quarterly Journal of Economics 95: 537-557. *Barber and Odean All that Glitters: The Effect of Attention and News on the Buying Behavior or Individual and Institutional Investors. Review of Financial Studies. *Della Vigna and Pollet (2006). Investor Inattention and Friday Earnings Announcements. Working Paper, UC Berkeley
6 Beliefs, Biases and Heuristics (Representativeness, Availability, Attribution, Hindsight) *Daniel, Hirshleifer and Subrahmanyam (1998). Investor Psychology and Security Market Under- and Overreactions. The Journal of Finance. 53, 1839-1885. *Billett and Qian Are Overconfident Managers Born or Made? Evidence of Self-Attribution Bias from Frequent Acquirers. Management Science.
7 Beliefs, Biases and Heuristics (Overconfidence) *Barber and Odean (2001), Boys Will Be Boys: Gender, Overconfidence, and Common Stock Mistakes. Quarterly Journal of Economics , 116(1), 261-292. *Richard Deaves, Erik Lüders, Guo Ying Luo "An Experimental Test of the Impact of Overconfidence and Gender on Trading Activity" *Barber and Odean (2000), Trading is Hazardous to Your Wealth: The Common Stock Investment Performance of Individual Investors, LV(2), 773-805. *Malmendier and Tate (forthcoming), Who Makes Acquisitions? CEO Overconfidence and the Market’s Reaction. Journal of Financial Economics. *Gervalis, S, Heaton, J. B., Odean, T., 2002, The Positive Role of Overconfidence and Optimism in Investment Policy, Working paper.
8 Beliefs, Biases and Heuristics (Overconfidence) *Kirchler, Maciejovsky and Weber, (2005). Irrelevant Information, Framing Effects, and Market Behavior-An Experimental Analysis. Journal of Behavioral Finance, 5(2), 90-100 *Tversky, Amos and Daniel Kahneman, “Rational Choice and the Framing of Decisions,” Journal of Business, 1986, vol. 59, no. 4, pt. 2. *Campbell and Sharpe (forthcoming) Anchoring Bias in Consensus Forecasts and its Effect on Market Prices. Journal of Financial and Quantitative Analysis.
9 Beliefs, Biases and Heuristics (Framing, Anchoring and Adjustments) *Loewenstein, George, 2002. When Genius Failed: The Rise and Fall of Long-Term Capital Management. *Rabin, Matthew and Richard H. Thaler, “Anomalies: Risk Aversion,” Journal of Economic Perspectives, Winter, 2001, 219-232 *Garber, Peter M., “Famous First Bubbles,” Journal of Economic Perspectives, Spring 1990, pp. 35-54. *Jeremy J. Siegel and Richard H. Thaler, 1997, “Anomalies The Equity Premium Puzzle” Journal of Economic Perspectives-Volume 11, Number 1-Winter 1997-Pages 191-200
10 Beliefs, Biases and Heuristics (Herd Behavior and Momentum Investing) *Loewenstein, George, 2002. When Genius Failed: The Rise and Fall of Long-Term Capital Management. *Rabin, Matthew and Richard H. Thaler, “Anomalies: Risk Aversion,” Journal of Economic Perspectives, Winter, 2001, 219-232 *Garber, Peter M., “Famous First Bubbles,” Journal of Economic Perspectives, Spring 1990, pp. 35-54. *Jeremy J. Siegel and Richard H. Thaler, 1997, “Anomalies The Equity Premium Puzzle” Journal of Economic Perspectives-Volume 11, Number 1-Winter 1997-Pages 191-200
11 Beliefs, Biases and Heuristics (Herd Behavior and Momentum Investing) *Loewenstein, George, 2002. When Genius Failed: The Rise and Fall of Long-Term Capital Management. *Rabin, Matthew and Richard H. Thaler, “Anomalies: Risk Aversion,” Journal of Economic Perspectives, Winter, 2001, 219-232 *Garber, Peter M., “Famous First Bubbles,” Journal of Economic Perspectives, Spring 1990, pp. 35-54. *Jeremy J. Siegel and Richard H. Thaler, 1997, “Anomalies The Equity Premium Puzzle” Journal of Economic Perspectives-Volume 11, Number 1-Winter 1997-Pages 191-200
12 Preference and Anomalities in the Financial Markets
13 Presentations
14 Presentations
15 Semester Review
16 Final Exam

 

Course Notes/Textbooks

Articles and Book chapters indicated above, presentation notes, current news

Suggested Readings/Materials

Forbes, W., 2009. Behavioural Finance. New York: John Wiley & Sons. ISBN: 978-0-470-02804-9

Lowenstein, R., 2001. When Genius Failed: The Rise and Fall of Long-Term Capital Management. Random House Trade. ISBN: 978-0375758256

 

EVALUATION SYSTEM

Semester Activities Number Weigthing
Participation
Laboratory / Application
Field Work
Quizzes / Studio Critiques
Portfolio
Homework / Assignments
1
30
Presentation / Jury
1
30
Project
Seminar / Workshop
Oral Exams
Midterm
Final Exam
1
40
Total

Weighting of Semester Activities on the Final Grade
2
60
Weighting of End-of-Semester Activities on the Final Grade
1
40
Total

ECTS / WORKLOAD TABLE

Semester Activities Number Duration (Hours) Workload
Theoretical Course Hours
(Including exam week: 16 x total hours)
16
3
48
Laboratory / Application Hours
(Including exam week: '.16.' x total hours)
16
0
Study Hours Out of Class
14
2
28
Field Work
0
Quizzes / Studio Critiques
0
Portfolio
0
Homework / Assignments
1
24
24
Presentation / Jury
1
20
20
Project
0
Seminar / Workshop
0
Oral Exam
0
Midterms
0
Final Exam
1
30
30
    Total
150

 

COURSE LEARNING OUTCOMES AND PROGRAM QUALIFICATIONS RELATIONSHIP

#
Program Competencies/Outcomes
* Contribution Level
1
2
3
4
5
1

To be able to identify and analyze problems in the field of trade and finance, and to develop solutions.

X
2 To be able to use the theoretical and practical knowledge gained in the field of International Trade and Finance.
3 To be able to analyze the developments in global markets by using critical thinking skills.
4 To be able to analyze and interpret data in the field of finance, commerce and economics by using information technologies effectively.
5 To be able to acquire knowledge about the legal regulations and practices in the field.
6 To be able to foresee and define the risks that could be encountered in the field of trade and finance and to take decisions to manage such risks. X
7 To be able to acquire and use verbal and numerical skills necessary for the nature of international trade and finance program.
8 To be able to obtain, synthesize and report the information related to the fields of trade and finance. X
9 To be able to contribute to the solution of problems as individual, team member or leader.
10

To be able to evaluate the issues related to the field with an ethical perspective and social sensitivity.

11 To be able to collect data in the areas of International Trade and Finance and communicate with colleagues in a foreign language ("European Language Portfolio Global Scale", Level B1).
12 To be able to speak a second foreign at a medium level of fluency efficiently.
13 To be able to relate the knowledge accumulated throughout human history to their field of expertise.

*1 Lowest, 2 Low, 3 Average, 4 High, 5 Highest

 


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