Shortly after Nokia announced that earnings and growth will be lower for one quarter due to its product cycles, the market responded (July 27, 2000) by trading nearly 3% of the companies entire cap and thereby erasing nearly $70 billion in market capitalisation. That means that although the company’s earnings per share where up 77% over the previous year, the share price went down 27% on 121 million shares traded, because of one single announcement. How is this to explain?
First the theory of modern finance will be described. Then the text continues with the mergence of behavioural finance and the third part presents some of the behavioural factors that influence decision making according to behavioural finance. Criticism of behavioural finance will follow and the assignment will end with my conclusion.
Inhaltsverzeichnis (Table of Contents)
- Introduction
- Modern Finance
- Emergence of Behavioural Finance
- Behavioural Factors
- Criticism of Behavioural Finance
- Conclusion
- Sources
Zielsetzung und Themenschwerpunkte (Objectives and Key Themes)
This text aims to introduce the concept of behavioural finance, highlighting its significance in the context of modern finance theory. It explores the key differences between the two perspectives and analyzes the impact of psychological factors on financial decision-making.
- The limitations of modern finance theory in explaining real-world market phenomena
- The emergence of behavioural finance as an alternative framework
- The influence of psychological biases on financial decision-making
- The impact of behavioural factors on market efficiency and anomalies
- The practical implications of behavioural finance for investors and market participants
Zusammenfassung der Kapitel (Chapter Summaries)
- Introduction: This chapter sets the stage by introducing the concept of behavioural finance through a real-world example of market reaction to company news. It provides a brief overview of the text's structure and key areas of discussion.
- Modern Finance: This chapter outlines the core principles of modern finance, focusing on its assumptions of rational market participants, efficient markets, and the importance of financial analysis. It highlights key figures and contributions within this framework.
- Emergence of Behavioural Finance: This chapter explores the historical context and key developments that led to the emergence of behavioural finance. It discusses early critiques of modern finance and the introduction of psychological insights into financial decision-making.
- Behavioural Factors: This chapter delves into specific psychological factors that influence financial decisions, including overconfidence and its impact on investment behaviour. It explores the relationship between these factors and market phenomena.
Schlüsselwörter (Keywords)
Key terms and concepts covered in this text include: behavioural finance, modern finance, market efficiency, irrational behaviour, psychological biases, overconfidence, investment decision-making, market anomalies, prospect theory, risk aversion, herding, framing effects, cognitive biases.
- Citation du texte
- Annekathrin Meyer (Auteur), 2003, Behavioural Finance, Munich, GRIN Verlag, https://www.grin.com/document/18413
