Postgraduate Course: Psychology of Investing and Financial Decisions (MBA) (CMSE11249)
||College||College of Arts, Humanities and Social Sciences
|Credit level (Normal year taken)||SCQF Level 11 (Postgraduate)
||Availability||Not available to visiting students
|Summary||This course is designed to provide an overview of an exciting new 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 investment decisions are limited and that we can improve our performance as investors and fund managers by recognising the biases and errors of judgment to which all of us are prone. The elective discusses what we know about the psychology of financial decision-making and explores the behaviour of both individual investors and finance professionals.
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. We aim to examine how the insights of behavioural finance theories shed light on the behaviour of individual investors and finance professionals in the context of investment and corporate finance decision-making. We also explore the possibility to improve investment performance by recognising the cognitive biases and applying appropriate de-biasing techniques.
Introduction to behavioural finance; Formal overview of investor psychology
Overconfidence and investment decisions
Disposition effect; Risk perceptions
Prospect theory; Decision frames and mental accounting
Familiarity and representativeness
Behavioural portfolio management
Social interactions and investing; Herding
Emotions and investment decisions
Recent topics in behavioural finance; Psychology in the mortgage crisis
Selected topics in behavioural corporate finance
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, 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 lecture.
Entry Requirements (not applicable to Visiting Students)
||Other requirements|| For Business School PG students only, or by special permission of the School. Please contact the course secretary.
Course Delivery Information
|Not being delivered|
On completion of this course, the student will be able to:
- Understand and critically discuss the differences between a behavioural finance perspective and a traditional finance perspective.
- Understand and discuss critically how an awareness of decision errors and cognitive biases can help develop better investors or financial managers.
- Understand and discuss critically the market efficiency debate and recent developments.
- Apply a critical analytical perspective to asset pricing bubbles and financial crises.
- Understand and critically evaluate the role of emotions in investment decisions.
Nofsinger, John (2014) The Psychology of Investing, 5th edition, Prentice Hall ISBN: 0133382877.
Montier, James (2007) Behavioural Investing, A Practitioner┐s Guide to Applying Behavioural Finance, Wiley
Baker, K. and Nofsinger, J. (2010), Behavioral Finance: Investors, Corporations, and Markets, John Wiley
|Graduate Attributes and Skills
||Cognitive and Subject Specific Skills:
Develop a critical understanding of the main principles of cognitive psychology as applied in behavioural finance;
Develop the ability to understand complex lines of argument and reasoning in behavioural finance;
Develop the links between behavioural finance theory and professional practice;
Apply relevant written skills;
Work in collaboration and teamwork
Be familiar with the latest developments and issues in behavioural finance and understand their implications for securities pricing, financial analysis, and corporate finance decision-making.
Working to deadlines
|Keywords||Investment Psychology Behaviour
|Course organiser||Dr Arman Eshraghi
|Course secretary||Mrs Angela Muir
Tel: (0131 6)51 3854