Behavioral Finance - a Study of Investor's Emotion
Abstract
Though Investment is a science deals with the study of capital market and then plan accordingly yet the study of investor 's emotion has a major role to play with. It is not sufficient to analyze Efficient Market Hypothesis and its drawbacks rather one has to go for a behavioral explanation of investor 's irrationality in a consistent and correlated manner. Thus comes Behavioral Finance, the study of the influence of psychology on the behavior of financial practitioners and the subsequent effect on market, into existence. In this study I have tried to analyze the concept of behavioral finance along with its four theories to explain the behavioral aspect of investors. This paper also focuses on its limitations.
INTRODUCTION:
If we always assume that financial markets are efficient and investors are rational then why there are so many studies about investor 's psychology? Investment managers always want to make money for themselves and for their clients. That is the reason they care about the "psychology" factor of financial market as well as investors.
The behavior of investors is not always rational, so investment managers do not forget how the psychology factor of a person plays a substantial role in behavior of financial market.
But, modern finance theories have almost completely ignored the role of the complex motivational and cognitive factors that influence investor 's (the best asset of a company) decision making.
In today 's buyer-market, we should face the truth that psychology systematically explores human judgment behavior and well being. It can teach us important facts about how humans differ from traditional economic assumption.
LITERATURE SURVEY
Earlier economics was closely attached to psychology, which was amply displayed in the book "The Crowd: A study of the popular Mind" published in 1896 by Gustave le Ban. The book was one of the greatest and most influential books of social psychology ever written.
But with the
Though Investment is a science deals with the study of capital market and then plan accordingly yet the study of investor 's emotion has a major role to play with. It is not sufficient to analyze Efficient Market Hypothesis and its drawbacks rather one has to go for a behavioral explanation of investor 's irrationality in a consistent and correlated manner. Thus comes Behavioral Finance, the study of the influence of psychology on the behavior of financial practitioners and the subsequent effect on market, into existence. In this study I have tried to analyze the concept of behavioral finance along with its four theories to explain the behavioral aspect of investors. This paper also focuses on its limitations.
INTRODUCTION:
If we always assume that financial markets are efficient and investors are rational then why there are so many studies about investor 's psychology? Investment managers always want to make money for themselves and for their clients. That is the reason they care about the "psychology" factor of financial market as well as investors.
The behavior of investors is not always rational, so investment managers do not forget how the psychology factor of a person plays a substantial role in behavior of financial market.
But, modern finance theories have almost completely ignored the role of the complex motivational and cognitive factors that influence investor 's (the best asset of a company) decision making.
In today 's buyer-market, we should face the truth that psychology systematically explores human judgment behavior and well being. It can teach us important facts about how humans differ from traditional economic assumption.
LITERATURE SURVEY
Earlier economics was closely attached to psychology, which was amply displayed in the book "The Crowd: A study of the popular Mind" published in 1896 by Gustave le Ban. The book was one of the greatest and most influential books of social psychology ever written.
But with the
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