Advances in Behavioral Finance

Book Overview

Modern financial markets offer the real world's best approximation to the idealized price auction market envisioned in economic theory. Nevertheless, as the increasingly exquisite and detailed financial data demonstrate, financial markets often fail to behave as they should if trading were truly dominated by the fully rational investors that populate financial theories. These markets anomalies have spawned a new approach to finance, one which as editor Richard Thaler puts it, "entertains the possibility that some agents in the economy behave less than fully rationally some of the time." Advances in Behavioral Finance collects together twenty-one recent articles that illustrate the power of this approach. These papers demonstrate how specific departures from fully rational decision making by individual market agents can provide explanations of otherwise puzzling market phenomena. To take several examples, Werner De Bondt and Thaler find an explanation for superior price performance of firms with poor recent earnings histories in the tendencies of investors to overreact to recent information. Richard Roll traces the negative effects of corporate takeovers on the stock prices of the acquiring firms to the overconfidence of managers, who fail to recognize the contributions of chance to their past successes. Andrei Shleifer and Robert Vishny show how the difficulty of establishing a reliable reputation for correctly assessing the value of long term capital projects can lead investment analysis, and hence corporate managers, to focus myopically on short term returns. As a testing ground for assessing the empirical accuracy of behavioral theories, the successful studies in this landmark collection reach beyond the world of finance to suggest, very powerfully, the importance of pursuing behavioral approaches to other areas of economic life. Advances in Behavioral Finance is a solid beachhead for behavioral work in the financial arena and a clear promise of wider application for behavioral economics in the future.

• Format: Paperback
• Language: English
• ISBN: 0871548445
• ISBN13: 9780871548443
• Release Date: August 1993
• Publisher: Russell Sage Foundation
• Length: 619 Pages
• Weight: 1.88 lbs.
• Dimensions: 1.3" x 6.0" x 8.7"

Customer Reviews

A must-read to every researcher or PhD student

The bible to everyone who is seriosly interested in behavioral finance , and a must read to a PhD studend. This book includes all the seminal papers of this brand new field of science. In my opinion if one read this book it is worthless to buy any other book about behavioral finance. A real masterpiece as I have never seen before !

A nice collection

This collection of papers concerning behavioural finance, is a very helpfull item for any PhD or reasearch student that works on this subject. Although it does not contain material of the basics of behavioural finance, it has some good papers on issues such as volatility of the markets, noice trading etc.

Too academically oriented for average investor

I was looking forward to learning about new theories in Behavioral Finance, but was a little disappointed by this book. The 21 articles each examine a discrepancy in a free market situation and develop theories for explaining the discrepancy drawing upon the behavioral finance field. I have an MBA and have been an investor for more than 20 years. There are too many statistics and academic language to be an efficient book for me. I quickly switched to finding each of the 21 questions, then skipping to the summary to find the behavioral finance theory for the discrepancy. I did enjoy the credit card high interest rate explanation and consider this explanation alone worth the price of the book. I also enjoyed the closed end fund discount price explanation also very useful. Book is ok, but 90% of the material can be skipped unless you are a finance professor who enjoys the academic orientation and detail.