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New Heritage Doll
Seoul Journal of Business
Volume 19, Number 1 (June 2013)

Behavioral Finance:
A Survey of the Literature and Recent Development

HYOYOUN PARK*1)
Euler Hermes Hong Kong Service
Hong Kong, China

WOOK SOHN**
KDI School of Public Policy and Management
Seoul, Korea

Abstract
This paper summarizes recent studies in behavioral finance—particularly regarding market anomalies and investor behavior—that are not reconciled with the traditional finance paradigms. This paper differs from previous survey literature in several aspects. We introduce more recent papers in the field, more literature on behavioral corporate finance, and provide statistics on the recent trends that are explored in behavioral finance papers. We expand the research scope to studies on Korean financial markets, introduce specific funds using behavioral finance techniques, and discuss the challenges facing behavioral finance.
Keywords: Behavioral finance, Market anomalies, Market efficiency,
Survey of literature

* 
Hyoyoun Park: Credit Analyst, Euler Hermes Hong Kong Services Limited, Suites
403-11, 4/F Cityplaza 4, 12 Taikoo Wan Road, Taikoo Shing, Hong Kong; phone:
+852-3665-8934; e-mail: karen.park@eulerhermes.com.
** 
Wook Sohn (Corresponding author): Professor, KDI School of Public Policy and
Management, 87 Hoegiro, Seoul 130-868, Korea; phone: +82-2-3299-1062; e-mail: wooksohn@ kdischool.ac.kr.

4

Seoul Journal of Business

INTRODUCTION
Although Modern Portfolio Theory (MPT) and the Efficient Market
Hypothesis (EMH), which represent standard finance, are successful, the alternative approach of behavioral finance includes psychological and sociological issues when investigating market anomalies and individual investor behavior. In the financial markets, we often observe some phenomena which cannot be explained rationally. For example, we do not have any logical evidences on random walk in the stock price movement while many fund managers use
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