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FIN 3617 Behavioural Finance

FIN 3617 Behavioural Finance

Course code: 
FIN 3617
Department: 
Finance
Credits: 
7.5
Course coordinator: 
Samuli Knüpfer
Product category: 
Bachelor
Portfolio: 
Bachelor of Finance - Programme Courses
Semester: 
2019 Spring
Active status: 
Active
Teaching language: 
English
Course type: 
One semester
Introduction

Over the past decades, the field of finance has developed a successful paradigm based on the notions that investors and managers are rational and that the market is efficient. In recent years, however, anecdotal evidence as well as theoretical and empirical research has shown this paradigm to be insufficient to describe various features of actual financial markets. In this course, we explain financial market phenomena by incorporating institutional, social, cognitive, and emotional biases to the traditional paradigm. This broader perspective is called behavioral finance.

The objective of this course is to give students an understanding of investor and managerial behavior and its impact on financial market outcomes. The participants should be able to identify most common obstacles to making rational decisions, to debias their own decisions, and to understand the risks and opportunities associated with biased decisions. The course spans all major fields of finance, including household finance, asset pricing, and corporate finance.

Learning outcomes - Knowledge

Students will acquire an understanding of the following topics:

  • What is behavioral finance?
  • How do people make investment decisions?
  • How does investor behavior affect asset prices?
  • How do firms respond to investor behavior?

 

Learning outcomes - Skills

After taking this course students will be able to:

  • Recognize behavioral biases in decision making
  • Debias financial decisions
  • Identify implications for asset pricing
  • Understand effects on corporate behavior
Learning Outcome - Reflection
  • The acquired theoretical and practical knowledge provided by the course enables the student to understand the role of behavioral influences across various settings in financial markets. The student develops a behavioral framework that can be applied to financial decision-making, asset pricing, and corporate behavior.
Course content
  • Behavioral finance vs. traditional finance
  • Behavioral finance and investor behavior
  • Behavioral finance and asset pricing
  • Behavioral finance and corporate behavior
Learning process and requirements to students

The course includes a combination of lectures and cases.

Specific information regarding any aspect of the course or student evaluation will be provided in class. It is the student's responsibility to obtain any information provided in class that is not included on the course homepage/itslearning or in the reading materials.

Students will be expected to actively participate in all in-class discussions (related to case studies, course concepts, applications of behavioural finance in the industry, etc.). 

Spreadsheets (Excel) are used for certain practical applications and examples. Students should be familiar with their use.

This is a course with continuous assessment (several exam components) and one final exam code. Each exam component is graded by using points on a scale from 0-100. The components will be weighted together according to the information below in order to calculate the final letter grade for the examination code (course). Students who fail to participate in one/some/all exam elements will get a lower grade or may fail the course. You will find detailed information about the point system and the cut off points with reference to the letter grades when the course start.

At re-sit all exam components must, as a main rule, be retaken during next scheduled course.

Software tools
No specified computer-based tools are required.
Additional information

.

Qualifications

Higher Education Entrance Qualification.

Required prerequisite knowledge

SØK 3520 Microeconomics or EXC 3520 Microeconomics and BØK 3423 Finance, or equivalent.

Exam categoryWeightInvigilationDurationSupport materialsGroupingComment exam
Exam category:
Submission
Form of assessment:
Written submission
Exam code:
FIN36171
Grading scale:
Point scale
Grading rules:
Internal and external examiner
Resit:
All components must, as a main rule, be retaken during next scheduled course
10No 1 Semester(s)Individual This component consists of a number of hand-ins that are submitted throughout the semester.
Exam category:
Submission
Form of assessment:
Written submission
Exam code:
FIN36171
Grading scale:
Point scale
Grading rules:
Internal and external examiner
Resit:
All components must, as a main rule, be retaken during next scheduled course
20No 1 Semester(s)Group ( 1 - 4)This component consists of a number of hand-ins that are submitted throughout the semester.
Exam category:
Activity
Form of assessment:
Class participation
Exam code:
FIN36171
Grading scale:
Point scale
Grading rules:
Internal examiner
Resit:
All components must, as a main rule, be retaken during next scheduled course
10No 1 Semester(s)Individual
Exam category:
Submission
Form of assessment:
Written submission
Exam code:
FIN36171
Grading scale:
Point scale
Grading rules:
Internal and external examiner
Resit:
All components must, as a main rule, be retaken during next scheduled course
60Yes3 Hour(s)
  • BI-approved exam calculator
  • Simple calculator
  • Bilingual dictionary
  • Interest table
Individual
Exams:
Exam category:Submission
Form of assessment:Written submission
Weight:10
Invigilation:No
Grouping (size):Individual
Support materials:
Duration: 1 Semester(s)
Comment:This component consists of a number of hand-ins that are submitted throughout the semester.
Exam code: FIN36171
Grading scale:Point scale
Resit:All components must, as a main rule, be retaken during next scheduled course
Exam category:Submission
Form of assessment:Written submission
Weight:20
Invigilation:No
Grouping (size):Group (1-4)
Support materials:
Duration: 1 Semester(s)
Comment:This component consists of a number of hand-ins that are submitted throughout the semester.
Exam code: FIN36171
Grading scale:Point scale
Resit:All components must, as a main rule, be retaken during next scheduled course
Exam category:Activity
Form of assessment:Class participation
Weight:10
Invigilation:No
Grouping (size):Individual
Support materials:
Duration: 1 Semester(s)
Comment:
Exam code: FIN36171
Grading scale:Point scale
Resit:All components must, as a main rule, be retaken during next scheduled course
Exam category:Submission
Form of assessment:Written submission
Weight:60
Invigilation:Yes
Grouping (size):Individual
Support materials:
  • BI-approved exam calculator
  • Simple calculator
  • Bilingual dictionary
  • Interest table
Duration:3 Hour(s)
Comment:
Exam code: FIN36171
Grading scale:Point scale
Resit:All components must, as a main rule, be retaken during next scheduled course
Exam organisation: 
Continuous assessment
Grading scale: 
ECTS
Total weight: 
100
Workload activityDurationType of durationComment student effort
Teaching42Hour(s)
Prepare for teaching78Hour(s)
Group work / Assignments40Hour(s)
Self study40Hour(s)Preparation for the final exam.
Expected student effort:
Workload activity:Teaching
Duration:42 Hour(s)
Comment:
Workload activity:Prepare for teaching
Duration:78 Hour(s)
Comment:
Workload activity:Group work / Assignments
Duration:40 Hour(s)
Comment:
Workload activity:Self study
Duration:40 Hour(s)
Comment:Preparation for the final exam.
Sum workload: 
200

A course of 1 ECTS credit corresponds to a workload of 26-30 hours. Therefore a course of 7,5 ECTS credit corresponds to a workload of at least 200 hours.

Talis literature

Obligatorisk/Compulsory

Article
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Anonymous Oct 19, 2013 Methods for all moments; Free exchange
Hilsenrath, Jon E Stock Characters: As Two Economists Debate Markets, The Tide Shifts; Belief in Efficient Valuation Yields Ground to Role Of Irrational Investors; Mr. Thaler Takes On Mr. Fama
Thaler, Richard H. 2013-10-06 Financial Literacy, Beyond the Classroom
Lusardi, Annamaria; Mitchell, Olivia 2014 The Economic Importance of Financial Literacy: Theory and Evidence
Apr 8, 2006 Special Report: The avuncular state - The new paternalism
Cronqvist, Henrik; Thaler, Richard H. 2004 Design Choices in Privatized Social-Security Systems: Learning from the Swedish Experience
Sommer, Jeff 2010-03-13 How Men's Overconfidence Hurts Them as Investors
Barber, Brad M.; Odean, Terrance 1999 The Courage of Misguided Convictions
List, John 2016-03-27 Resist Checking Up on Your Portfolio
Genesove, David; Mayer, Christopher 2001 Loss Aversion and Seller Behavior: Evidence from the Housing Market
DellaVigna, Stefano; Pollet, Joshua M. 2009 Investor Inattention and Friday Earnings Announcements
Stokes, Henry Using Behavioral Finance to Better Understand the Psychology of Investors
Frazzini, Andrea 2006 The Disposition Effect and Underreaction to News
Lamont, Owen A.; Thaler, Richard H. 2003 Anomalies: The Law of One Price in Financial Markets
Mar 1, 2003 Finance And Economics: Don't shoot the messenger; Short-selling
Colvin, Geoffrey 2003 Time Warner, Don't Blame Steve Case.
Cooper, Michael J.; Dimitrov, Orlin; Rau, P. Raghavendra 2001 A Rose.com by Any Other Name
Ofek, Eli; Richardson, Matthew 2003 DotCom Mania: The Rise and Fall of Internet Stock Prices
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Authors/Editors År Tittel Edition Publisher StudentNote
Lamont, Owen 2004 Go Down Fighting: Short Sellers vs. Firms
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Authors/Editors År Tittel Journal Edition Publisher StudentNote
Barberis, Nicholas 2013 Psychology and the Financial Crisis of 2007-2008 Psychology and the Financial Crisis of 2007-2008 Chapter 2.
Baker, Malcolm; Ruback, Richard; Wurgler, Jeffrey Behavioral corporate finance Behavioral corporate finance
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Authors/Editors År Tittel Edition Publisher StudentNote
Barber, Brad M.; Lee, Yi-Tsung; Liu, Yu-Jane; Odean, Terrance 2009 Just How Much Do Individual Investors Lose by Trading?
Choi, James J.; Laibson, David; Madrian, Brigitte . 2010 Why Does the Law of One Price Fail? An Experiment on Index Mutual Funds.
Benartzi, Shlomo; Thaler, Richard H. 2007 Heuristics and Biases in Retirement Savings Behavior.
MALMENDIER, U; TATE, G 2008-07 Who makes acquisitions? CEO overconfidence and the market's reaction
COHEN, LAUREN; FRAZZINI, ANDREA 2008-08 Economic Links and Predictable Returns
Cohen, Lauren; Lou, Dong 2012-05 Complicated firms
Bali, Turan G.; Cakici, Nusret; Whitelaw, Robert F. 2011-2 Maxing out: Stocks as lotteries and the cross-section of expected returns
K. BRUNNERMEIER, MARKUS; NAGEL, STEFAN 2004-10 Hedge Funds and the Technology Bubble
Baker, Malcolm; Wurgler, Jeffrey 2000 The Equity Share in New Issues and Aggregate Stock Returns.
Baker, Malcolm; Wurgler, Jeffrey 2004-06 A Catering Theory of Dividends
Roll, Richard 1984 Orange Juice and Weather
Shiller, Robert J. 1981 Do Stock Prices Move Too Much to be Justified by Subsequent Changes in Dividends?
Barber, Brad M. Barber; Odean, Terrance 2001 Boys Will be Boys: Gender, Overconfidence, and Common Stock Investment
Grinblatt, Mark; Keloharju, Matti 2009 Sensation Seeking, Overconfidence, and Trading Activity
Odean, Terrance 1998 Are Investors Reluctant to Realize Their Losses?
Grinblatt, Mark; Keloharju, Matti 2001 How Distance, Language, and Culture Influence Stockholdings and Trades
Bradley, Michael; Brav, Alon; Goldstein, Itay; Jiang, Wei 2010-1 Activist arbitrage: A study of open-ending attempts of closed-end funds
Wurgler, Jeffrey; Zhuravskaya, Ekaterina 2002-10 Does Arbitrage Flatten Demand Curves for Stocks?
Mitchell, Mark; Pulvino, Todd Pulvino and Erik Stafford; Stafford, Erik 2002 Limited Arbitrage in Equity Markets
D’Avolio, Gene 2002-11 The market for borrowing stock
Diether, Karl B.; Malloy, Christopher J.; Scherbina, Anna 2002 Differences of Opinion and the Cross Section of Stock Returns
Jones, Charles M; Lamont, Owen A 2002-11 Short-sale constraints and stock returns
Coval, Joshua D.; Shumway, Tyler 2005 Do Behavioral Biases Affect Prices?

No importance set

Article
Authors/Editors År Tittel Edition Publisher StudentNote
Colvin, Geoffrey 2003 Time Warner, Don't Blame Steve Case.