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|
|Duration of module:||
Duration (weeks) - term 1: |
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 Activities||Guided independent study||Placement / study abroad|
Details of learning activities and teaching methods
|Category||Hours of study time||Description|
|Scheduled learning and teaching activity||22||Lectures|
|Scheduled learning and teaching activities||5||Tutorials|
|Guided Independent Study||123||Problem sets, readings and assignments|
|Form of assessment||Size of the assessment (eg length / duration)||ILOs assessed||Feedback method|
|Practice exercises||1 hour||1-8||Oral and written|
Summative assessment (% of credit)
|Coursework||Written exams||Practical exams|
Details of summative assessment
|Form of assessment||% of credit||Size of the assessment (eg length / duration)||ILOs assessed||Feedback method|
|Assignment||40||Max. 2000 words||1-8||Written|
|Final exam||60||90 minutes||1-7||Written|
Details of re-assessment (where required by referral or deferral)
|Original form of assessment||Form of re-assessment||ILOs re-assessed||Timescale for re-assessment|
|Assignment (40%)||Assignment (Max. 2000 words, 40%)||1-8||August/September re-assessment period|
|Final exam (60%)||Exam (90 minutes, 60%)||1-7||August/September re-assessment period|
- 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 Economics, 7, 133-159.
Module has an active ELE page?
Indicative learning resources - Other resources
- Thaler, R. H. 2015, Misbehaving – The Making of Behavioural Economics, Penguin Random House.
Last revision date