THE MENTAL AND BEHAVIORAL MISTAKES INVESTORS MAKE

Abstract

Behavioral finance results from an interdisciplinary convergence of cognitive psychology and financial economics. Behavioral finance is a field of finance that proposes psychology-based theories to explain stock market anomalies. Behavioral finance encompasses research that drops the traditional assumptions of expected utility maximization with rational investors in efficient markets. There are many concepts in behavioral finance like overconfidence, anchoring, mental accounting, herd behavior, Gambler’s fallacy, overreaction and availability bias. We first briefly discuss behavioral finance in general, and then we explain the key concepts that lead and guide to behavioral finance

Keywords

• Investors, Behavioral Finance, Physchology

References

1. Amin, Amjad, Shoukat Sehrish and Khan Zahoor (2009), “Gambler’s Fallacy And Behavioral Finance In The Financial Markets (A Case Study Of Lahore Stock Exchange)”, Abasyn University Journal of Social Sciences, Volume 3, No. 2, July- December, pp.67-73.
2. Balı, Selçuk (2012), “Behaviour Of Individuals And Institutions In Relation To
3. Finance And Accounting”, The Journal of International Social Research, Vol:5, Issue:2, Winter, pp.304-314. Barber, Brad M., Odeon Terrance (2001), “Boys will be Boys: Gender,
4. Overconfidence, and Common Stock Investment”, Quarterly Journal Of Economics, Volume 116, Issue 1, pp.261-292. Barberis, Nicholas, Thaler Richard (2003), A Survey Of Behavioral Finance,
5. Handbook of the Economics of Finance, Edited by G.M. Constantinides, M. Harris and R. Stulz, 3 Elsevier Science B.V. Barberis, Nicholas C. (2013), “Thirty Years of Prospect Theory in Economics: A
6. Review and Assessment”, Journal of Economic Perspectives, Volume 27, Number 1,Winter, pp.173–196. Bloomfield, Robert (2009), “Traditional Vs. Behavioral Finance”, Johnson School
7. Research Paper Series, 22, pp.1-19. Gneezy Ayelet, Epley Nicholas (2007), Prospect Theory, in R. F. Baumeister and K. D. Vohs: Encyclopedia of Social Psychology. Los Angeles: Sage Publications, pp. 711-714.
8. Grinblaltt, Mark, Han Bing (2004), Prospect Theory, Mental Accounting, and Momentum, Yale ICF Working Paper No. 00-071, pp.1-38. http://highered.mcgraw-hill.com/sites/dl/free/0070979804/662627/SampleCh09.pdf,  Accessed 15.03.2013]. http://www.niftydirect.com/nsebse/marketgyan/Learning%20Session%202nd.pdf, Accessed 15.03.2013].

9. Johnsson, Malena, Lindblom Henrik, Platan, Peter (2002). Behavioral Finance
10. And the Change of Investor Behavior During and After the Speculative Bubble at the End of 1990s, Lund University: Master’s Thesis in Finance Faculty of
11. Business Administration. Kaestner, Michael (2006), “Investors’ Misreaction to Unexpected Earnings:
12. Evidence of Simultaneous Overreaction and Underreaction”,EFMA Symposium Behavioral Finance, Durham, UK, European Financial Management Association, February, pp.1-17. Kahneman, Daniel and Tversky Amos (1979), Prospect Theory: An Analysis of
13. Decision under Risk, Econometrica, Vol. 47, No. 2. March,pp. 263-292. Kishore, Rohit (2004), Theory of Behavioural Finance and its Application to
14. Property Market: A Change in Paradigm, Twelfth Annual Pacific Rim Real Estate Society Conference, January 22-25, Auckland, New Zealand,pp.1-17. Kıyılar, Murat, Acar Okan (2009), “Behavioural Finance And The Study Of The Irrational Financıal Choices Of Credit Card Users”, Annales Universitatis
15. Apulensis Series Oeconomica, 11(1), pp.457-468. Nik Muhammad, Nik Maheran (2009), “Behavioral Finance vs Traditional
16. Finance”, Advance Management Journal, Vol. 2 (6) June, pp.1-10. Phung, Albert, (2010), Behavioral Finance, http://www.investopedia.com/university/behavioral_finance/default.asp, 04.2013.
17. Rekik, Yosra Mefteh, Boujelbene Younes (2013), Determinants of Individual
18. Investors’ Behaviors: Evidence from Tunisian Stock Market, Journal of Business and Management, Vol.8, Issue.2, pp.109-119. Ricciardi, Victor (2004), “A Risk Perception Primer: A Narrative Research
19. Review of the Risk Perception Literature in Behavioral Accounting and Behavioral Finance”,http://papers.ssrn.com/sol3/papers.cfm?abstract_id=566802, Accessed 15.03.2013].
20. Ricciardi, Victor, Simon Helen K., (2000), “What is Behavirol Finance?”,
21. Business, Education & Technology Journal, Fall, 2(1), pp.1-9. Ritter, Jay R. (2003), “Behavioral Finance”, Pacific-Basin Finance Journal, Vol. , No. 4, September pp. 429-437.
22. Subash, Rahul (2012), Role of Behavioral Finance in Portfolio Investment
23. Decisions: Evidence from India, Charles University in Prague Faculty of Social Sciences Institute of Economic Studies, Master Thesis. Von Neumann, John, Morgenstern Oskar (1947), Theory Of Games And Economic Behavior, 2nd ed. Princeton, NJ: Princeton University Press.
24. Williams, Benjamin (2010), “Speculative Bubbles Dynamics and the Role of Anchoring”,
25. Conference, EFMA Aarhus. pp.1-19.  Yalçın, Kadir Can (2009), Behavioral Finance: Investor Psychology, Marmara
26. University, Ph.D. Thesis.