An Understanding of the Landscape of Behavioural Finance Biases and the Adoption of Mathematical Models in Strategy Formulation
AbstractPersistent occurrences and phenomenon in the economic and financial systems about which there appears to be no sustainably effective solution are of concern to various stakeholders. Following the financial crisis of 2007-2008 there was a flurry of research activity geared towards explaining what the major causes of this and similar occurrences before were. Similar soul searching occurs after every such phenomenon, as evidenced when the South Sea Bubble burst centuries ago and other such crises that have occurred in the financial markets. This paper reviews some of the theories and what, in behavioural finance, are referred to as biases. An emerging strand of research is the field of neuroeconomics according to which medical imaging technology now allows us to look at brain activity as decisions are being made. The approach helps us to understand the nature and reasons for certain behavioural biases. Recent scientific studies have demonstrated that individuals with brain lesions that impaired emotional decision-making were more likely to behave as rational investors than individuals with normal brains. The paper reviews some of the quantitative or mathematical models used to explain behaviour underlying strategies used to make decisions in financial markets in particular and investment in general, namely, Prospect theory model, Quantitative Behavioural Model (QBM) and Igor’s portfolio rule and investment strategies model.
. Markowitz, H. (1952). Portfolio selection. Journal of Finance
. Black F., Scholes, M. (1973) The pricing of options and corporate liabilities. Journal of Political Economy81, 637-659
. Xun Yu Zhou∗(2010) Mathematicalising Behavioural Finance: Proceedings of the International Congress of Mathematicians Hyderabad, India, 2010
. Michal Stupavský, (2018): Behavioural Finance Foundations for Investors
. Fama, E. F. (1970). Efficient markets: A review of theory and empirical work. Journal of Finance, 383-417.
. Bradley Graham (2009). By His Own Rules: The Ambitions, Successes, and Ultimate Failures of Donald Rumsfeld. PublicAffairs. ISBN 978-1-58648-421-7
. Shiv, Loewenstein, Bechara, Damasio and Damasio, (2005): ‘Investment Behaviour and the Negative Side of Emotion’ Psychological Science 16, 435-439.
. Gilovich Thomas and Grifﬁn Dale (2002): Heuristics and Biases: The Psychology of Intuitive Judgment, The Academy of Management Review
. Mydhili Virigineni1, M. Bhaskara Rao2*(2017): Contemporary Developments in BEHAVIOURAL Finance International Journal of Economics and Financial Issues, 2017, 7(1), 448-459.
. Werner De Bondt De Paul et al (2010) What can behavioural ﬁnance teach us about ﬁnance? https://www.researchgate.net/publication/46546097
. Kahneman, D. & Tversky, A. (1979): Prospect Theory: An Analysis of Decision under Risk. Econometrica, 1979, 47 (2): 263-292.
. Kahneman, D. (2003). A perspective on judgment and choice. American Psychologist,58,697–720.
. Kennedy J, Eberhart RC (1955). Particle Swarm Optimization. Proceedings of IEEE International Conference on Neural Networks, Perth, Australia. 1995: 1942-1948.
. Jack S. Levy (1992): An Introduction to Prospect Theory: Political Psychology, Vol. 13, No. 2, Special Issue (Jun., 1992), pp. 171-186
. T. Pachur and M. Spar (2015): Domain-specific preferences for intuition and deliberation in decision making, Journal of Applied Research in Memory and Cognition, Journal of Applied Research in Memory and Cognition4(2015)303–31
. Kahneman, D. (2011). Thinking. fast and slow. New York, NY: Farrar, Straus and Giroux.
. Imad A. Moosa and Vikash Ramiah (2017): Loss Aversion Bias, the Disposition Effect and Representativeness Bias, The Financial Consequences of Behavioural Biases, 10.1007/978-3-319-69389-7_4, (71-92), (2017).
. Khan, M., Tan, S. and Chong, L. (2017), "Perception of past portfolio returns, optimism and financial decisions", Review of Behavioural Finance, Vol. 9 No. 1, pp. 79-98.:
. Barber and Odean (1999), ‘The courage of misguided convictions’ Financial Analysts Journal, November/December, p47.
. Shefrin, H. (2000). Beyond Greed and Fear: Understanding Behavioural Finance and the Psychology of investing. Boston, Massachusetts: Harvard Business School Press.
. Maribel Blasco, Liv Egholm Feldt and Michael Jakobsen (2012): If only cultural chameleons could fly too: A critical discussion of the concept of cultural intelligence, International Journal of Cross Cultural Management12(2) 229–245
. Arnold S. Wood (2006): Finance and Investment Committee Decision Making, CFA Institute Conference Proceedings Quarterly, December 2006, Vol. 23, No. 4: 29-37, p. 32.
. Bon, G. L. (2002): 'The Crowd. A study of the popular mind by Gustav Le Bon'[M]. New York: Dover Pub, Inc, 2002.
. Yosra Mefteh Rekik1, Younes Boujelbene (2013): Determinants of Individual Investors’ Behaviours: Evidence from Tunisian Stock Market IOSR Journal of Business and Management (IOSR-JBM) e-ISSN: 2278-487X.Volume 8, Issue 2(Jan. -Feb. 2013), PP 109-119www.iosrjournals.org
. Stupavsky, Michael. (1972), "Inelastic collisions of excited atoms: sensitized fluorescence of sodium atoms mercury molecules." (1972). https://scholar.uwindsor.ca/etd/2431
. Thimmaraya Ramesh and Masuna Venkateshwarlu (2011): A New Quantitative Behavioural Model for Financial Prediction. 3rd International Conference on Information and Financial Engineering IPEDR vol.12 (2011) © (2011) IACSIT Press, Singapore
Copyright (c) 2020 International Journal of Sciences: Basic and Applied Research (IJSBAR)
This work is licensed under a Creative Commons Attribution-NonCommercial-NoDerivatives 4.0 International License.
Authors who submit papers with this journal agree to the following terms:
- Authors retain copyright and grant the journal right of first publication with the work simultaneously licensed under a Creative Commons Attribution License that allows others to share the work with an acknowledgement of the work's authorship and initial publication in this journal.
- Authors are able to enter into separate, additional contractual arrangements for the non-exclusive distribution of the journal's published version of the work (e.g., post it to an institutional repository or publish it in a book), with an acknowledgement of its initial publication in this journal.
- Authors are permitted and encouraged to post their work online (e.g., in institutional repositories or on their website) prior to and during the submission process, as it can lead to productive exchanges, as well as earlier and greater citation of published work (See The Effect of Open Access).
- By submitting the processing fee, it is understood that the author has agreed to our terms and conditions which may change from time to time without any notice.
- It should be clear for authors that the Editor In Chief is responsible for the final decision about the submitted papers; have the right to accept\reject any paper. The Editor In Chief will choose any option from the following to review the submitted papers:A. send the paper to two reviewers, if the results were negative by one reviewer and positive by the other one; then the editor may send the paper for third reviewer or he take immediately the final decision by accepting\rejecting the paper. The Editor In Chief will ask the selected reviewers to present the results within 7 working days, if they were unable to complete the review within the agreed period then the editor have the right to resend the papers for new reviewers using the same procedure. If the Editor In Chief was not able to find suitable reviewers for certain papers then he have the right to accept\reject the paper.B. sends the paper to a selected editorial board member(s). C. the Editor In Chief himself evaluates the paper.
- Author will take the responsibility what so ever if any copyright infringement or any other violation of any law is done by publishing the research work by the author
- Before publishing, author must check whether this journal is accepted by his employer, or any authority he intends to submit his research work. we will not be responsible in this matter.
- If at any time, due to any legal reason, if the journal stops accepting manuscripts or could not publish already accepted manuscripts, we will have the right to cancel all or any one of the manuscripts without any compensation or returning back any kind of processing cost.
- The cost covered in the publication fees is only for online publication of a single manuscript.