Behavioral Finance: Limited Rationality in Financial Markets

Table of Content
Preface 3rd Edition
Dedication
Introduction
Section I − The Homo Economicus in the center of Traditional Finance
1 How Neoclassical Theory shaped rational economic behavior
1.1 From Traditional Finance to Emotional Finance
1.2 Classical theories of Traditional Finance
1.2.1 The rational economic market participant according to Smith
1.2.2 Random Walk Theory according to Bachelier
1.2.3 Expected Utility Theory according to von Neumann & Morgenstern
1.2.4 Information processing according to Bayes
1.2.5 Efficient Market Hypothesis according to Fama
Summary Chapter 1
2 Limitations of Traditional Finance
2.1 Models of Neoclassical Capital Market Theory
2.1.1 Portfolio Selection Theory
2.1.2 Capital Asset Pricing Model (CAPM)
2.1.3 Arbitrage Pricing Theory as an alternative to CAPM
2.2 Valuation methods as a basis for financial decisions
2.2.1 Fundamental Analysis
2.2.2 Technical Analysis
2.3 Old vs. new reality ￢ﾀﾒ the Black Swan
Summary Chapter 2
Concluding remarks Section I
Section II ￢ﾀﾒ Recurring speculative bubbles ￢ﾀﾒ triggered by the Homo Economicus Humanus
3 Investor behavior from the perspective of Behavioral Finance
3.1 Starting point and objective of Behavioral Finance
3.1.1 Evolving concept of rationality
3.1.2 Departure from the Expected Utility Theory ￢ﾀﾒ Bounded Rationality
3.2 Change of perspective within the framework of Behavioral Finance
3.2.1 Comparison of neoclassical and behavioral capital market theory
3.2.2 Research methods of Behavioral Finance
3.2.3 The investor in the course of time
Summary Chapter 3
4 Speculative bubbles as a sign of market anomalies
4.1 Causes of speculative bubbles and their intensification
4.1.1 Herding
4.1.2 Limits of arbitrage
4.2 Anatomy of speculative bubbles according to Kindleberger & Minsky
4.3 Detailed review of bubbles and market anomalies
4.3.1 Significance of speculative bubbles for economies
4.3.2 Types of speculative bubbles
4.3.3 Types of capital market anomalies
Summary Chapter 4
5 Speculative bubbles from the 17th to 21st century
5.1 Benoit Mandelbrot’s market characteristics
5.2 Examples of significant speculative bubbles
5.2.1 The Tulip Mania of 1636
5.2.2 The Mississippi bubble of 1716
5.2.3 The stock market boom and crash of 1929
5.2.4 The dot-com speculative bubble of the late 1990s
5.2.5 The U.S. real-estate credit bubble between 2001 and 2006
5.2.6 Speculative bubbles after the U.S. mortgage crisis
5.3 Indications of speculative bubbles in Private Equity
Summary Chapter 5
Concluding remarks Section II
Section III – The Homo Economicus Humanus within the information and decision-making process
6 Information and Decision-Making Process
6.1 Phases of the information and decision-making process
6.1.1 Information perception
6.1.2 Information Processing/Evaluation
6.1.3 Investment Decision
6.2 Basis of decision-making from the perspective of Behavioral Finance
6.2.1 Decision-making based on Prospect Theory
6.2.2 Features of the valuation functions
6.2.3 Valuation of securities based on the Prospect Theory
Summary Chapter 6
7 Limited rationality during information perception
7.1 Heuristics of cognitive origin
7.1.1 Misperception of probabilities
7.1.2 Misinterpretation of information
7.2 Heuristics of emotional origin
7.3 Assessment of the risk/return-harmfulness of reviewed heuristics
Summary Chapter 7
8 Limited rationality during information processing
8.1 Heuristics of cognitive origin
8.1.1 Misperception of probabilities
8.1.2 Misperception of information
8.1.3 Misperception of objective reality
8.1.4 Misperception of one’s own abilities
8.2 Heuristics of emotional origin
8.3 Assessment of the risk/return-harmfulness of the heuristics considered
Summary Chapter 8
9 Limited rationality during decision-making
9.1 Heuristics of cognitive origin
9.1.1 Misperception of objective reality
9.1.2 Misperception of own abilities
9.2 Heuristics of emotional origin
9.2.1 Misperception of objective reality
9.2.2 Misperception of one’s own abilities
9.3 Assessment of the risk-/return-harmfulness of the considered heuristics
9.4 Overview of the heuristics considered in the information and decisionmaking process
Summary Chapter 9
Concluding remarks Section III
Section IV – Applications of Behavioral Finance and Recent Developments
10 Applications of Behavioral Finance in Wealth Management
10.1 Overview of limited rational behavior in investment advice
10.2 Dealing with heuristics in investment advice
10.2.1 Applied heuristics during information perception
10.2.2 Applied heuristics during information processing
10.2.3 Applied heuristics during decision-making
Summary Chapter 10
11 Application of Behavioral Finance in corporate governance
11.1 Overconfidence in entrepreneurial investment decisions
11.2 Dividend policy from the perspective of Behavioral Finance
11.3 Initial Public Offerings from the perspective of Behavioral Finance
11.4 Corporate Governance from the perspective of Behavioral Finance
11.5 Equity Premium Puzzle
Summary Chapter 11
12 Financial Nudging ￢ﾀﾒ behavioral approaches for better financial decisions
12.1 Libertarian Paternalism
12.1.1 Choice architecture
12.1.2 Freedom of choice and paternalism
12.1.3 Types and characteristics of nudging
12.1.4 Criticism of libertarian paternalism
12.2 Financial nudging approaches
12.2.1 Behavioral science foundations of financial nudging
12.2.2 Personal Loans
12.2.3 Credit Cards
12.2.4 Mortgages
12.2.5 Pension provisions
12.2.6 Shares and bonds
Summary Chapter 12
13 Further development of Behavioral Finance ￢ﾀﾒ a look into the future
13.1 Limits of Behavioral Finance
13.2 Emergence of Neurofinance/Neuroeconomics
13.2.1 Research on the human brain
13.2.2 Decision processes from the perspective of Neurofinance
13.3 Origin of Emotional Finance
13.3.1 Emotions as a basis for investment decisions
13.3.2 Interpretation of market movements from an Emotional Finance perspective
Summary Chapter 13
Concluding remarks Section IV
Glossary
Literature
Books
Journals and Essays
Websites
Biographies
Index