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Module

Behavioural Finance

Module description

The efficient markets hypothesis has been the central proposition of finance since the 1970s. Since then, disruptive events like the rise and fall of the dot-com bubble and the global financial crisis have shed substantive doubt on this hypothesis. The field of behavioural finance relaxes the assumption of fully rational investors and incorporates insights from psychology to better understand investor behaviour. We will discuss empirical challenges of the efficient markets hypothesis and provide an overview of behavioural theories that set out to explain commonly observed deviations.

Full module specification

Module title:Behavioural Finance
Module code:BEEM157
Module level:M
Academic year:2022/3
Module lecturers:
  • Dr Pauline Vorjohann - Convenor
Module credit:15
ECTS value:

7.5

Pre-requisites:

None

Co-requisites:

BEEM101

Duration of module: Duration (weeks) - term 1:

11

Module aims

The aim of this module is to expand and enrich students’ knowledge of finance from a behavioural perspective. It provides students  with the ability to question classical finance models in an informed and well-grounded manner. It does so by first developing a deep understanding of the classical models and their underlying assumptions, moving on to how they are challenged by empirical evidence, and finally showing how theories from behavioural economics can help to predict and understand real-world behaviour within financial markets.

ILO: Module-specific skills

  • 1. Critically evaluate assumptions and hypotheses of classical models of investor behaviour in finance
  • 2. Discuss empirical observations that challenge classical finance theory
  • 3. Explain and critically evaluate behavioural models of investor behaviour and their predictions

ILO: Discipline-specific skills

  • 4. Critically evaluate the underlying assumptions of economic theories and discuss how these assumptions are tested
  • 5. Relate behavioural/psychological insights to classical economic theory

ILO: Personal and key skills

  • 6. Critically evaluate research articles in a systematic and constructive manner
  • 7. Engage in informed and well-reasoned discussion
  • 8. Produce original high quality technical written work

Learning activities and teaching methods (given in hours of study time)

Scheduled Learning and Teaching ActivitiesGuided independent studyPlacement / study abroad
27123

Details of learning activities and teaching methods

CategoryHours of study timeDescription
Scheduled learning and teaching activity22Lectures
Scheduled learning and teaching activities5Tutorials
Guided Independent Study123Problem sets, readings and assignments

Formative assessment

Form of assessmentSize of the assessment (eg length / duration)ILOs assessedFeedback method
Practice exercises1 hour1-8Oral and written

Summative assessment (% of credit)

CourseworkWritten examsPractical exams
40600

Details of summative assessment

Form of assessment% of creditSize of the assessment (eg length / duration)ILOs assessedFeedback method
Assignment40Max. 2000 words1-8Written
Final exam 6090 minutes1-7Written
0
0
0
0

Details of re-assessment (where required by referral or deferral)

Original form of assessmentForm of re-assessmentILOs re-assessedTimescale for re-assessment
Assignment (40%)Assignment (Max. 2000 words, 40%)1-8August/September re-assessment period
Final exam (60%)Exam (90 minutes, 60%)1-7August/September re-assessment period

Syllabus plan

  • Efficient markets hypothesis
  • Equity premium puzzle
  • Risk-taking and portfolio evaluation
  • Value investment
  • Volatility of stock prices
  • Noise trading
  • Investor sentiment
  • The limits of arbitrage

Indicative learning resources - Basic reading

  • Thaler, R. H. 1993 and 2005, Advances in Behavioral Finance Vol. I and II, Russell Sage Foundation and Princeton University Press.
  • Shleifer, A. 2000. Inefficient Markets – An Introduction to Behavioural Finance, Oxford University Press.
  • Hirshleifer, D. (2015). Behavioral finance. Annual Review of Financial Economics7, 133-159.

Module has an active ELE page?

Yes

Indicative learning resources - Other resources

  • Thaler, R. H. 2015, Misbehaving – The Making of Behavioural Economics, Penguin Random House.

Origin date

09/02/2022

Last revision date

09/02/2022