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DRPS : Course Catalogue : Business School : Common Courses (Management School)

Postgraduate Course: Behavioural Finance (CMSE11203)

Course Outline
SchoolBusiness School CollegeCollege of Humanities and Social Science
Credit level (Normal year taken)SCQF Level 11 (Postgraduate) AvailabilityNot available to visiting students
SCQF Credits15 ECTS Credits7.5
SummaryThis course is designed to provide an overview of an exciting new and fast growing area in finance, which takes as its premise that investment decision-making and investor behaviour are not necessarily driven by 'rational' considerations but by aspects of personal and market psychology. Behavioural finance recognises that our abilities to make complex financial decisions are limited due to the biases and errors of judgement to which all of us are prone. This course introduces cognitive biases, discusses the impact of such biases on the financial decision-making, and explores the behaviour of individual investors, fund managers and corporate managers.
Course description This course is intended to complement other finance courses that are mainly based on the traditional paradigm which assumes that investors and managers are generally rational. Specifically, this course has three main objectives. First, we aim to examine how the insights of behavioural finance theories shed light on the behaviour of individual investors and finance professionals in investment decision-making and corporate financial decision-making. Second, we explore the possibility to improve investment performance and corporate performance by recognising the cognitive biases and applying appropriate 'debiasing' techniques. Finally, we investigate the implications of behavioural finance for the construction of good corporate governance mechanisms.


Overview of behavioural finance
Overconfidence and individual investors
Overconfidence and professional investors
Disposition effect
Risk perceptions
Prospect theory
Decision frames
Mental accounting
Familiarity and representativeness
Behavioural portfolio management
Social interaction
Emotions and investment decisions
Behavioural biases and corporate decision-making (Valuation, capital budgeting, and capital structure)
Behavioural biases and corporate decision-making (Dividend policy and mergers and acquisitions)
Psychological phenomena, corporate governance and group process
Behavioural finance and the financial crisis

Student Learning Experience:

The learning occurs primarily through reading and thinking about the papers or chapters of books recommended and discussion in class. This reading is supported by the programme of ten lectures and nine tutorials, in each of which an overview of the topic is presented and the findings of a number of relevant papers are reviewed in some detail. Students are required to write a report. All students are expected to participate actively in class discussion.

Learning takes place in four stages. Prior to each session you are required to complete the reading assignments given. During the session, the lecture slides will be used to focus the discussion and to help to summarise key issues. As the structure of the elective is designed to be cumulative, you will be expected to bring your learning and insights from previous sessions to bear on subsequent sessions. You will bring together and test out your understanding of the issues discussed in the course during the lectures.
Entry Requirements (not applicable to Visiting Students)
Pre-requisites Co-requisites
Prohibited Combinations Other requirements Business School students only unless an arrangement has been made. Please contact the course secretary.
Course Delivery Information
Academic year 2018/19, Available to all students (SV1) Quota:  None
Course Start Semester 2
Timetable Timetable
Learning and Teaching activities (Further Info) Total Hours: 150 ( Lecture Hours 20, Seminar/Tutorial Hours 10, Formative Assessment Hours 38, Summative Assessment Hours 2, Programme Level Learning and Teaching Hours 3, Directed Learning and Independent Learning Hours 77 )
Additional Information (Learning and Teaching) Prep Reading 40 Assignment: 38 Exam Prep 37
Assessment (Further Info) Written Exam 60 %, Coursework 40 %, Practical Exam 0 %
Additional Information (Assessment) Group written assignment 40% (of which 80% is the assignment mark and peer assessment 20%).
Final exam 60%
Feedback All students will be given at least one formative feedback or feedforward event for every course they undertake, provided during the semester in which the course is taken and in time to be useful in the completion of summative work on the course. Such feedback may be at course or programme level, but must include input of relevance to each course in the latter case.

For this course specifically students will get written feedback on the assignment and guideline answers and general feedback on the student performance in the exam.
Exam Information
Exam Diet Paper Name Hours & Minutes
Main Exam Diet S2 (April/May)2:00
Learning Outcomes
On completion of this course, the student will be able to:
  1. Understand and critically discuss the differences between a behavioural finance perspective and a traditional finance perspective
  2. Understand and critically discuss the cognitive biases and errors of judgment that affect financial decisions
  3. Critically evaluate behavioural influences involving individuals investment decisions
  4. Critically evaluate behavioural influences involving corporate (executive) financial decisions
  5. Critically discuss important developments in this new area and the associated practical insights they provide
Reading List

Nofsinger, J. (2014), The Psychology of Investing, 5th edition (international edition), Pearson, ISBN: 0133382877.
Shefrin, H. (2007), Behavioral Corporate Finance, 1st edition, McGraw-Hill, ISBN: 0072848650.


Forbes, W. (2009), Behavioural Finance, 1st edition, John Wiley, ISBN: 9780470028049.
Ackert, L. and Deaves, R. (2010), Behavioral Finance: Psychology, Decision-Making, and Markets, 1st edition, South-Western, ISBN: 0538752866.
Baker, K. and Nofsinger, J. (2010), Behavioral Finance: Investors, Corporations, and Markets, John Wiley, ISBN: 9780470499115.
Montier, J. (2010), Behavioural Finance, John Wiley, ISBN: 9780470844876.
Additional Information
Graduate Attributes and Skills Intellectual Skills and personal development

On completion of the module, students should:
Have developed a critical understanding of the main principles of cognitive psychology as applied in behavioural finance;
Have developed their ability to understand complex lines of argument and reasoning in behavioural finance;
Be able to develop the links between behavioural finance theory and professional practice;
Have improved their written skills;
Have developed skills in collaboration and teamwork.

Subject Specific Skills

Students will be familiarised with the latest developments and issues in behavioural finance and understand their implications for securities pricing, financial analysis, and corporate finance decision-making.
Course organiserMs Yue Liu
Tel: (0131 6)50 4309
Course secretaryMr Jonathan MacBride
Tel: (0131 6)51 3028
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