There is abundant evidence suggesting that the standard economic paradigm of rational investors does not adequately describe behavior in financial markets. Behavioral Finance examines how individuals' attitudes and behavior affect their financial decisions. This course reviews recent research on possible mispricing in financial markets due to the nature of psychological biases. Moreover the course deals with behavioral finance models explaining investor behavior or market anomalies when rational models provide no sufficient explanations. Topics will include among others overconfidence, prospect theory, heuristic driven biases and frame dependence.
Behavioral finance applies scientific research on human and social cognitive and emotional biases. After completing this course, students will be able to better understand economic decisions and how they affect market prices and returns. They will know how behavioral findings are integrated with neo-classical theory.
FIN 5XX and/
Every student participating in this course should have completed the 2-semester finance module of the Mannheim Bachelor program (or equivalent courses) and the module Decisions Analysis. The lecture generally assumes basic knowledge in mathematics (calculus, optimization) and statistics (mean, variance, standard deviation).
|Contact hours||Independent study time|
|Lecture||2 SWS||9 SWS|
|Exercise class||1 SWS||5 SWS|
|Form of assessment||Written exam (60 min.)|
Prof. Dr. Dr. h. c. Martin Weber
Prof. Dr. Dr. h.c. Martin Weber
|Duration of module||1 semester|
|Range of application||M.Sc. MMM, M.Sc. Bus. Edu., M.Sc. Econ., M.Sc. Bus. Inf., M.Sc. Bus. Math.|
|Preliminary course work||–|
|Literature||Barber, B. M., & Odean, T. (2013). Chapter 22 – The Behavior of Individual Investors. In Handbook of the Economics of Finance (Vol. 2, pp. 1533–1570).|
Barberis, N., & Thaler, R. (2003). A survey of behavioral finance. Handbook of the Economics of Finance, 1, 1053–1128.
First part: Market participants (biases, buying and selling decisions, saving decisions)
Second part: Markets (market efficiency, limits to arbitrage, event studies, time-series and cross-sectional return patterns)