Behavioral Finance and Capital Markets How Psychology Influences Inv
Behavioral Finance helps investors understand unusual asset prices and empirical observations originating out of capital markets. At its core, this field of study aids investors in navigating complex psychological trappings in market behavior and making s
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Behavioral Finance and Capital Markets How Psychology Influences Investors and Corporations
Adam Szyszka
BEHAVIORAL FINANCE AND CAPITAL MARKETS
Copyright © Adam Szyszka, 2013. Softcover reprint of the hardcover 1st edition 2013 978-1-137-33874-7 All rights reserved. First published in 2013 by PALGRAVE MACMILLAN® in the United States— a division of St. Martin’s Press LLC, 175 Fifth Avenue, New York, NY 10010. Where this book is distributed in the UK, Europe and the rest of the world, this is by Palgrave Macmillan, a division of Macmillan Publishers Limited, registered in England, company number 785998, of Houndmills, Basingstoke, Hampshire RG21 6XS. Palgrave Macmillan is the global academic imprint of the above companies and has companies and representatives throughout the world. Palgrave® and Macmillan® are registered trademarks in the United States, the United Kingdom, Europe and other countries. Library of Congress Cataloging-in-Publication Data is available from the Library of Congress. A catalogue record of the book is available from the British Library. Design by Newgen Knowledge Works (P) Ltd., Chennai, India. First edition: September 2013 10 9 8 7 6 5 4 3 2 1 ISBN 978-1-349-46414-2 ISBN 978-1-137-36629-0 (eBook) DOI 10.1057/9781137366290
To those who encouraged, motivated, and supported me greatly in the effort to prepare this book. Your inspiration, friendship, and love made this possible
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Contents
List of Figures and Exhibits
ix
Introduction
1
Part I
Foundations
1 Behavioral Approach versus Neoclassical Finance 2 Psychological Aspects of Decision Making
Part II
9 37
Investor Behavior and Asset Pricing
3 Investor Behavior
61
4 Asset-Pricing Anomalies and Investment Strategies
87
Part III
Aggregate Market Behavior
5 Market-wide Consequences of Behavioral Biases
119
6 Behavioral Insights into Financial Crisis
143
Part IV Behavioral Corporate Finance 7 Rational Corporations in Irrational Markets
171
8 Managerial Biases in Corporate Policy
197
9 Managerial Practice
217
10 Heuristics and Biases among Corporate Managers
241
Concluding Remarks
265
viii
●
Contents
Notes
271
References
277
Name Index
313
Subject Index
323
Figures and Exhibits
Figures 1.1 Risk reduction against the increase in the number of assets in investment portfolio 1.2 Efficient frontier 2.1 Shape of a hypothetical value function v according to the prospect theory 2.2 Shape of a hypothetical weighting function π according to the prospect theory 4.1 Size premium (SMB) in the US market in the period 1927–2012 4.2 Book-to-market premium (HML) in the US market in the period 1927–2012 6.1 Current account deficit, 1992–2010 6.2 Consumer prices (year to year percent change), 1992–2010 7.1 The percentage of dividend-paying firms from the NYSE, AMEX, and NASDAQ sample between 1981 and 2011 10.1 Shape of the value function suggested by Kahneman and Tversky (1979) with a dotted line marking the modification for positive arguments
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