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DRPS : Course Catalogue : Business School : Business Studies

Undergraduate Course: Behavioural Finance and Market Efficiency (ACCN10026)

Course Outline
SchoolBusiness School CollegeCollege of Arts, Humanities and Social Sciences
Credit level (Normal year taken)SCQF Level 10 (Year 3 Undergraduate) AvailabilityAvailable to all students
SCQF Credits20 ECTS Credits10
SummaryThis course is designed to introduce students to the basic principles of behavioural finance and its implications for investors in international capital markets, analysts and other market participants.
Course description This elective 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. Are markets really 'efficient'? How can we explain the existence of market anomalies?

Outline Content

- Is our decision making biased? what is behavioural finance?
- Formal overview of investor psychology
- Heuristic driven biases;
- Other judgement biases, overconfidence and investor performance, selling winners too early and riding losers too long;
- Recent advances in behavioural finance;
- Emotional Finance;
- Introduction to market anomalies;
- Value puzzle;
- Momentum paradox;
- Post-earnings announcement drift;
- Corporate events and long horizon returns;
- Accruals anomaly, analyst recommendations anomaly;
- Behavioural finance versus market efficiency.

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 two assessed reports. All students are expected to participate actively in class discussion.

Learning takes place in four stages:

1) Prior to each session students are required to complete the reading assignments given
2) During the session the bullet points on the slides will be used to focus the discussion and to help to summarise key issues
3) As the structure of the elective is designed to be cumulative students will be expected to bring their learning and insights from previous sessions to bear on subsequent sessions
4) They will bring together and test out their understanding of the issues discussed in the course during the lectures

At the end of each lecture topic there will be a set of questions some of them MCQ as well and feedback will be given each week.
Entry Requirements (not applicable to Visiting Students)
Pre-requisites Students MUST have passed: Principles of Finance (BUST08003) OR Introduction to Corporate Finance (BUST08030)
Prohibited Combinations Other requirements None
Information for Visiting Students
Pre-requisitesVisiting students must have at least 4 Business Studies courses at grade B or above. This MUST INCLUDE at least one Finance course at intermediate level. This course cannot be taken alongside BUST08003 Principles of Finance or BUST08030 Introduction to Corporate Finance. We will only consider University/College level courses.
High Demand Course? Yes
Course Delivery Information
Academic year 2024/25, Available to all students (SV1) Quota:  180
Course Start Semester 1
Timetable Timetable
Learning and Teaching activities (Further Info) Total Hours: 200 ( Lecture Hours 20, Seminar/Tutorial Hours 6, Summative Assessment Hours 2, Programme Level Learning and Teaching Hours 4, Directed Learning and Independent Learning Hours 168 )
Assessment (Further Info) Written Exam 0 %, Coursework 100 %, Practical Exam 0 %
Additional Information (Assessment) 50% Essay (Individual) - 2,000 words - Assesses course Learning Outcomes 1,2,5

50% Essay (Individual) - 2,000 words - Assesses course Learning Outcomes 1,3,4,5
Feedback Formative: Feedback will be provided throughout the course.

Summative: Feedback will be provided on assessments within agreed deadlines.
No Exam Information
Learning Outcomes
On completion of this course, the student will be able to:
  1. Understand and discuss critically the differences between a behavioural finance perspective and a traditional finance perspective, and evaluate important developments in this new area and the associated practical insights they provide.
  2. Understand how, by appreciating the cognitive biases to which a person is susceptible, that person can become a better investor or financial manager.
  3. Understand and critically discuss the market efficiency debate and recent developments.
  4. Understand how to exploit market anomalies appropriately.
  5. Appraise critically some of the less well-founded claims made by behavioural finance proponents and reconcile the teachings of behavioural finance with traditional views of market efficiency.
Reading List
Required Text

John R. Nofsinger, The Psychology of Investing, 7th edition, Routledge, 2022, ISBN 9780367748180

Only to be used for very few lectures as a supplementary reading (not required to buy)

Hirchey and Nofsinger, Investments, 2nd edition, ISBN: 978-0-07-110435-7, McGraw-Hill

Other Texts of interest -

James Montier, Behavioural Finance: Insights into Irrational Minds and Markets, Wiley Finance, 2002, ISBN 0-470-84487-6

Hersch Shefrin, Behavioral Corporate Finance, McGraw-Hill, 2006, ISBN 0-07-284865-0

Leonard Zacks, The Handbook of Equity Market Anomalies: Translating Market Inefficiencies into Effective Investment Strategies, Wiley, 2011, ISBN: 978-0-470-90590-6
Additional Information
Graduate Attributes and Skills Autonomy, Accountability and Working with Others

After completing this course, students should be able to:

Act with integrity, honesty and trust in all business stakeholder relationships, and apply ethical reasoning to effective decision making, problem solving and change management.

Communication, ICT, and Numeracy Skills

After completing this course, students should be able to:

Critically evaluate and present digital and other sources, research methods, data and information; discern their limitations, accuracy, validity, reliability and suitability; and apply responsibly in a wide variety of organisational contexts.

Knowledge and Understanding

After completing this course, students should be able to:

Demonstrate a thorough knowledge and understanding of contemporary organisational disciplines; comprehend the role of business within the contemporary world; and critically evaluate and synthesise primary
and secondary research and sources of evidence in order to make, and present, well informed and transparent organisation-related decisions, which have a positive global impact.

Identify, define and analyse theoretical and applied business and management problems, and develop approaches, informed by an understanding of appropriate quantitative and/or qualitative techniques, to explore
and solve them responsibly.
Course organiserDr Maria Michou
Tel: (0131 6)50 8341
Course secretaryMiss Quinny Jiang
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