Run by Bangor Business School
10 Credits or 5 ECTS Credits
Organiser: Dr Danial Hemmings
Overall aims and purpose
The module provides an in-depth coverage of Behavioural Finance, which replaces the "rationality" assumption with behavioural biases that have been documented by psychologists. This approach will be applied to explain puzzles in asset pricing and corporate finance, and to underpin practical applications.
The module provides an introduction to Behavioural Finance as an alternative approach to explaining investors' decisions and behaviour, and financial market outcomes, based on psychological theory and evidence. This includes consideration of the Efficient Markets Hypothesis, market inefficiency and specific empirical anomalies; as well as Expected Utility Theory and Allais’ and Rabin’s critiques. Alternative perspectives of financial decision making, such as Prospect Theory, are developed, based on psychological research and evidence, and are used to underpin the concept of investor sentiment. Behavioural explanations for prominent asset pricing anomalies as explored, as well as frictions that promote market inefficiency, such as arbitrage constraints. The module also briefly covers applications of Behavioural theories to Corporate Finance decisions.
D- to D+ (40-49%): No major omissions or inaccuracies in the deployment of information/skills. Some grasp of theoretical/conceptual/practical elements. Integration of theory/practice/information present intermittently in pursuit of the assessed work's objectives.
B- to B+ (60-69%): Very good performance Most of the relevant information accurately deployed. Good grasp of theoretical/conceptual/practical elements. Good integration of theory/practice/information in pursuit of the assessed work's objectives. Evidence of the use of creative and reflective skills.
A- to A+ (70%+): Outstanding Performance. The relevant information accurately deployed. Excellent grasp of theoretical/conceptual/practice elements. Good integration of theory/practice/information in pursuit of the assessed work's objectives. Strong evidence of the use of creative and reflective skills.
C- to C+
C- to C+ (50-59%): Much of the relevant information and skills mostly accurately deployed. Adequate grasp of theoretical/conceptual/practical elements. Fair integration of theory/practice/information in the pursuit of the assessed work's objectives. Some evidence of the use of creative and reflective skills.
Understand and elucidate the relative strengths and weaknesses of the efficient markets hypothesis.
Critically evaluate the competing approach of behavioural finance.
Apply the behavioural finance paradigm in particular cases.
|COURSEWORK||Individual written report||
1,000 word individual written report based on application of Behavioural Finance using the Stocktrak trading simulation.
|EXAM||Formal Examination 1.5 hours||
1.5 hour closed-book exam.
Teaching and Learning Strategy
One 2-hour lecture per week.
Private study will include time reviewing lecture materials and recommended reading, completing assignments, and revising for the exam.
|Practical classes and workshops||
Two 1-hour computer lab sessions.
- Literacy - Proficiency in reading and writing through a variety of media
- Computer Literacy - Proficiency in using a varied range of computer software
- Exploring - Able to investigate, research and consider alternatives
- Information retrieval - Able to access different and multiple sources of information
- Critical analysis & Problem Solving - Able to deconstruct and analyse problems or complex situations. To find solutions to problems through analyses and exploration of all possibilities using appropriate methods, rescources and creativity.
- Argument - Able to put forward, debate and justify an opinion or a course of action, with an individual or in a wider group setting
Subject specific skills
- knowledge of theories and empirical evidence concerning financial management, risk and the operation of capital markets (in cases of degrees with significant finance content).
- Analysis, deduction and induction. Economic reasoning is highly deductive, and logical analysis is applied to assumption-based models. However, inductive reasoning is also important. The development of such analytical skills enhances students' problem-solving and decision-making ability.
- An appreciation of the nature of the contexts in which finance can be seen as operating, including knowledge of the institutional framework necessary for understanding the role, operation and function of markets and financial institutions (e.g. the economic, legal, regulatory and tax environment, both national and international; the firm; the capital markets and the public sector).
- A knowledge of the major theoretical tools and theories of finance, and their relevance and application to theoretical and practical problems (e.g. concept of arbitrage and examples of its use; financial mathematics and capital budgeting criteria; informational efficiency; optimal risk sharing; portfolio theory; asset pricing models and the valuation of securities; cost of capital; derivative pricing; risk management; information asymmetry; principal agency relationships; signalling; Fisher separation and capital budgeting criteria; behavioural finance; term structure and the movement of interest rates; determination of exchange rates and financial intermediation).
- An ability to interpret financial data including that arising in the context of the firm or household from accounting statements and data generated in financial markets. The interpretation may involve analysis using statistical and financial functions and procedures such as are routinely available in spreadsheets (eg Microsoft Excel) and statistical packages. It may assume the skills necessary to manipulate financial data and carry out statistical and econometric tests (e.g. estimation and interpretation of asset pricing models; financial modelling and projections; event studies and residuals analysis; elements of time series analysis, such as serial correlation mean reversion, and stochastic volatility).
- An understanding of the relationship between financial theory and empirical testing, and application of this knowledge to the appraisal of the empirical evidence in at least one major theoretical area. The appraisal should involve some recognition of the limitation and evolution of empirical tests and theory (eg the efficient markets hypothesis; anomalies; pricing of derivatives and other securities; bond portfolio management; exchange rates; raising capital and capital structure).
- An understanding of the factors influencing the investment behaviour and opportunities of private individuals (bonds, equities, and derivatives; risk aversion; risk/return trade-offs; portfolio management and performance measurement; pensions and long term savings; the tax treatment of savings and investments; international diversification; forex risk; objectives of and constraints on institutional investors and advisors).
Talis Reading listhttp://readinglists.bangor.ac.uk/modules/asb-3309.html
Courses including this module
Compulsory in courses:
- L193: BSc Financial Economics (Bangor International College) year 3 (BSC/BICFE)
- L111: BSc Financial Economics year 3 (BSC/FINEC)
- L11B: BSc Financial Economics (4 year w Incorporated Foundation) year 3 (BSC/FINEC1)
Optional in courses:
- NN45: BA Accounting and Banking year 3 (BA/AB)
- NN36: BA Accounting and Banking with International Experience year 4 (BA/ABIE)
- N400: BA Accounting and Finance year 3 (BA/AF)
- N401: BA Accounting & Finance (with International Experience) year 4 (BA/AFIE)
- N322: BA Banking and Finance year 3 (BA/BIF)
- NN13: BA Business Studies and Finance year 3 (BA/BSF)
- NN14: BA Business Stud & Finance (with International Experience) year 4 (BA/BSFIE)
- N107: BA Business year 3 (BA/BUS)
- NN44: BSc Accounting and Banking with International Experience year 4 (BSC/ABIE)
- NN43: BSc Accounting and Banking year 3 (BSC/ACCB)
- NN46: BSc Accounting and Banking (4 year with Incorp Found) year 3 (BSC/ACCB1)
- NN4J: BSc Accounting and Finance (4 year with Incorp Found) year 3 (BSC/ACCF1)
- NN4H: BSc Accounting and Finance year 3 (BSC/ACCFIN)
- N402: BSc Accounting & Finance (with International Experience) year 4 (BSC/ACCFINIE)
- 8V55: BSc Banking and Finance (with International Experience) year 3 (BSC/BFIE)
- N391: BSc Banking and Finance year 3 (BSC/BFIN)
- N39B: BSc Banking and Finance (4 year w Incorporated Foundation) year 3 (BSC/BFIN1)
- N406: BSc Accounting and Finance (Bangor International College) year 3 (BSC/BICAF)
- N324: BSc Banking and Finance (Bangor International College) year 3 (BSC/BICBF)
- N106: BSc Business Stud & Finance (Bangor International College) year 3 (BSC/BICBSF)
- NN1H: BSc Business Studies and Finance year 3 (BSC/BSFIN)
- NN1J: BSc Business Studies and Finance (4 year with Incorp Found) year 3 (BSC/BSFIN1)