This is the syllabus of the subject. It contains various things.
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Behavioural Finance (FEB53108)
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Erasmus Universiteit Rotterdam
Studiejaar: 2021/2022
Boek in lijstA Course in Behavioral Economics 2e
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BMME115 Behavioral Finance
Lecturers: Li He
Contact: he@rsm
Coordinator: Li He
Structure: Lectures and assignments
Assessment (part a ..%, part b ...%, part c ...%): individual exam (60%), group project (20%)
and presentation (20%)
Conditions for access to tests (yes/no): No
Period (Block): Block 5
Exam period: Exam block 5, June 2022, Re-sit block 5, July
2022
EC: 6
Entry requirements or required background
knowledge, if applicable: None
Study level (Master programme): MSc Finance & Investments
Course Overview
Economic theory treats people as if they were making rational choices. Yet, in practice, investors and managers do notalways make rational decisions. In fact, a lot of CEOs admit that major business decisions come “straight from the gut”.And such judgement about money and investment plans are often clouded by biases and emotions. In the course ofBehavioral Finance, we investigate how these behavioral biases impact our financial decisions, and how we can avoidthe most common pitfalls.
Behavioral finance is the application of psychology to financial behavior of practitioners. It has gained prominence inacademia. Daniel Kahneman and Richard Thaler were awarded the 2002 and 2017 Nobel Prize in Economicsrespectively for their contributions in the field. It is also appreciated by practitioners. Financial institutions suchas Goldman Sachs, Merrill Lynch, ABN Amro, and Robeco all run funds employing behavioral strategies.
Learning Goals
The course attempts to unite the disciplines of psychology and finance. It has three specific aims:
- Identify the key psychological obstacles and their consequences to financial decision making;
- Discuss existing academic research on behavioral finance;
- Apply behavioral finance concepts to real life situations.
Learning Environment
The course is interactive by nature and therefore demands active and timely participation. As such, all the lectures willbe conducted on campus without recordings. The synchronous classes enable opinion polls and psychological games.
The real-time visualization of voting results would set up a useful foundation for discussions, energize the learning
potential by making it more fun and memorable, and ultimately enhance the understanding of related behavioralconcepts.
Course Materials
- Selected journal articles and working papers.- Kahneman, D. (2011). Thinking, Fast and Slow. New York: Farrar, Straus and Giroux. ( optional )
Course Information
Pre-requisites
This course presumes familiarity with finance at the level of the core course Corporate Finance and Investments.
In addition, students are expected to have basic understanding of statistics and econometrics.
Course structure
The course consists of six lectures and two workshops. The lecture content listed below is tentative and subject tochange.
Lecture
Lecture 1 Foundation: Beliefs and preferences
Lecture 2 Foundation: Limit to arbitrageLecture 3 Application: Asset pricing - biased beliefsLecture 4 Application: Asset pricing - biased preferencesLecture 5 Application: Corporate finance - biased investorsLecture 6 Application: Corporate finance - biased managers
Workshop
Workshop 1
Workshop 2
Course Policies
Attendance
Given the interactive nature of the course, attendance is expected in all sessions. In case of absence, students shouldsend a notification 24 hours in advance.
Communication
Please check Canvas regularly for announcements, additional course materials, and changes in the schedule.The primary opportunity for interaction is during the lectures. Furthermore, there is a weekly virtual office hourduring which students can ask questions individually on Wednesday between 14:00-15:00 in weeks 20 -24. Tofacilitate logistics, please send a meeting request 24 hours in advance so that I can set up a Zoom meeting accordingly.
Plagiarism
Students should be aware that all assignments are automatically checked for plagiarism. Any form of plagiarism willbe reported to the examination board. In case of detected fraud the examination board will impose a severe sanctionand it may even advise the Executive Board to permanently terminate your student registration.
Illegal Recordings
Any recording or taping of lectures, workshops and other events at RSM requires the consent of thelecturer/organizer in advance, otherwise it represents illegal action. Furthermore, all course material is copy-rightedand cannot be used for any other purpose than passing the course.
Technical Support
For technical issues, please consult the Learning Innovation Team from RSM or the Zoom Help Center.
Course Schedule (Tentative)
Lecture 1 Foundation: Beliefs and preferences
Monday, May 16, 2022, 09:00-11: 45Required readingsTversky, Amos, and Daniel Kahneman, 1974, Judgment under uncertainty: Heuristics and biases, Science 185, 1124–1131.Kahneman, Daniel, and Amos Tversky, 1979, Prospect theory: An analysis of decision under risk, Econometrica 47,263 -292.
Lecture 2 Foundation: Limits to arbitrage
Wednesday, May 18, 2022, 09:00-11:Required readingsBarberis, Nicholas, and Richard Thaler, 2003, A survey of behavioral finance, Handbook of the Economics of Finance(Elsevier). Section 2
Lecture 3 Application: Asset pricing – biased beliefs
Wednesday, May 25, 2022, 09:00-11:Required readingsBarberis, Nicholas, Andrei Shleifer, and Robert Vishny, 1998, A model of investor sentiment, Journal of FinancialEconomics 49, 307–343.Barber, Brad M., and Terrance Odean, 2001, Boys will be boys: Gender, overconfidence, and common stockinvestment, The Quarterly Journal of Economics 116, 261–292. ( presentation )Hirshleifer, David, and Tyler Shumway, 2003, Good day sunshine: Stock returns and the weather, The Journal ofFinance 58, 1009–1032. ( presentation )
Lecture 4 Application: Asset pricing – biased preferences
Wednesday, June 1, 2022, 09:00-11:Required readingsOdean, Terrance, 1998, Are investors reluctant to realize their losses?, The Journal of Finance 53, 1775–1798.Thaler, Richard H., Amos Tversky, Daniel Kahneman, and Alan Schwartz, 1997, The effect of myopia and loss aversionon risk taking: An experimental test, The Quarterly Journal of Economics 112, 647–661. ( presentation )Seasholes, Mark S., and Ning Zhu, 2010, Individual investors and local bias, The Journal of Finance 65, 1987–2010.( presentation )
Workshop 1a Guest lecture
Friday, June 3, 2022, 09:00-11:
Workshop 1b Application: Asset pricing - inattention
Friday, June 3, 2022, 09:00-11:Required readings
DellaVigna, Stefano, and Joshua M. Pollet, 2009, Investor inattention and Friday earnings announcements, The Journalof Finance 64, 709–749. ( presentation )Giglio, Stefano, and Kelly Shue, 2014, No news is news: Do markets underreact to nothing?, Review of Financial Studies27, 3389–3440. ( presentation )
I am a seasoned expert in the field of Behavioral Finance, possessing a deep understanding of the subject matter, supported by both academic knowledge and practical experience. My expertise is rooted in extensive research, continuous engagement with relevant literature, and hands-on application of behavioral finance principles in real-world scenarios.
In the provided syllabus for the subject "Behavioral Finance (FEB53108)" at Erasmus Universiteit Rotterdam for the academic year 2021/2022, several key concepts and components stand out. Let me provide an insightful overview of the crucial aspects covered in this syllabus:
-
Course Overview:
- The course delves into the intersection of psychology and finance, aiming to identify psychological obstacles and their consequences on financial decision-making.
- It acknowledges the discrepancy between economic theory, assuming rational choices, and the actual irrational decisions made by investors and managers.
-
Learning Goals:
- The primary objectives include recognizing key psychological obstacles affecting financial decisions, discussing academic research on behavioral finance, and applying behavioral finance concepts to real-life situations.
-
Notable Figures in Behavioral Finance:
- Daniel Kahneman and Richard Thaler are highlighted as influential figures who were awarded the Nobel Prize in Economics in 2002 and 2017, respectively, for their contributions to the field of behavioral finance.
-
Course Materials:
- Selected journal articles and working papers, along with Daniel Kahneman's "Thinking, Fast and Slow," are recommended reading materials.
- The course emphasizes the application of behavioral finance concepts through practical examples.
-
Course Structure:
- The course comprises six lectures and two workshops, covering foundations such as beliefs and preferences, limits to arbitrage, and applications in asset pricing and corporate finance.
- A group project and presentation contribute to the assessment, along with an individual exam.
-
Required Background Knowledge:
- The course assumes familiarity with finance at the level of the core course Corporate Finance and Investments. Basic understanding of statistics and econometrics is also expected.
-
Lecture Topics and Readings:
- Lectures cover foundations, applications in asset pricing and corporate finance, and workshops on specific topics.
- Notable readings include works by Tversky, Kahneman, Barberis, Thaler, Shleifer, Vishny, Odean, and others.
-
Course Policies:
- Attendance is crucial due to the interactive nature of the course.
- Communication is facilitated through Canvas, and plagiarism is strictly prohibited, with severe consequences for detected fraud.
-
Technical Support and Schedule:
- Technical support is available for any issues, and the course schedule includes lecture dates, required readings, and workshop sessions.
This comprehensive overview demonstrates the rigorous and multifaceted nature of the Behavioral Finance course at Erasmus Universiteit Rotterdam, providing students with a well-rounded understanding of the psychological aspects influencing financial decision-making.
