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FIN 620: Behavioral Finance

Contents
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.

Learning outcomes
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.

Necessary prerequisites
FIN 5XX and/or FIN 6XX

Recommended prerequisites
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 hoursIndependent study time
Lecture2 SWS9 SWS
Exercise class1 SWS5 SWS
ECTS6
LanguageEnglish
Form of assessmentWritten exam (60 min.)
Restricted Admissionyes
Further information
Examiner
Performing lecturer
Prof. Dr. Dr. h. c. Martin Weber
Prof. Dr. Dr. h.c. Martin Weber
OfferingSpring semester
Duration of module 1 semester
Range of applicationM.Sc. MMM, M.Sc. WiPäd, M.Sc. VWL, M.Sc. Wirt. Inf., M.Sc. Wirt. Math.
Preliminary course work
Graded yes
LiteratureBarber, 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.
Course outlineIntroduction
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)