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Role of Behavioral Finance in Portfolio Investment Decisions: Evidence from India
Subash, Rahul ; Báťa, Karel (advisor) ; Jandík, Tomáš (referee)
I Role of Behavioral Finance in Portfolio Investment Decisions: Evidence from India Abstract Extreme volatility has plagued financial markets worldwide since the 2008 Global Crisis. Investor sentiment has been one of the key determinants of market movements. In this context, studying the role played by emotions like fear, greed and anticipation, in shaping up investment decisions seemed important. Behavioral Finance is an evolving field that studies how psychological factors affect decision making under uncertainty. This thesis seeks to find the influence of certain identified behavioral finance concepts (or biases), namely, Overconfidence, Representativeness, Herding, Anchoring, Cognitive Dissonance, Regret Aversion, Gamblers' Fallacy, Mental Accounting, and Hindsight Bias, on the decision making process of individual investors in the Indian Stock Market. Primary data for analysis was gathered by distributing a structured questionnaire among investors who were categorized as (i) young, and (ii) experienced. Results obtained by analyzing a sample of 92 respondents, out of which 53 admitted to having suffered a loss of at least 30% because of the crisis, revealed that the degree of exposure to the biases separated the behavioral pattern of young and experienced investors. Gamblers' Fallacy, Anchoring and...
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The Analysis of the Relative Efficiency of the Czech and Polish Financial Market.
Džmuráňová, Hana ; Rippel, Milan (advisor) ; Todica, Doina (referee)
of bachelor thesis Author: Hana Džmuráňová The topic of this bachelor thesis is the Theory of efficient markets. The thesis is split into two related parts. The first part aims to introduce the Theory of efficient markets and behavioral finance. It focuses on several anomalies and limitations in the Theory of efficient markets that have been found as a result of behavioral finance research. The second part of the thesis is an empirical text dedicated to the relative weak form efficiency analysis of the two Central and Eastern Europe Markets - the Prague and the Warsaw Stock Exchange. Relative efficiency is tested by the random walk properties of market index returns and by the OLS method for autoregressive process for market index returns. It has been found that the Warsaw Stock Exchange is relatively more efficient in the weak form efficiency than the Prague Stock Exchange.
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Consumer Decision-Making in Conditions of Risk
Cetlová, Tereza ; Svobodová, Kateřina (referee) ; Škapa, Stanislav (advisor)
The aim of the thesis is to afford a complex perspective of a parallel development of psychology and economics to the readers. It is suggested, how psychological experiments could be used for the overall enrichment of the classical theory of economics. In the thesis, readers are introduced to the development of economic theories over time, and also to what role a human takes as a personality. Including the thesis is the part engaging in consumer decision process.
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Anomalies of financial markets
Máčayová, Miroslava ; Stádník, Bohumil (advisor) ; Vacek, Vladislav (referee)
Theory of efficient markets generally describes financial market as a place with perfect rationality and awareness. According to this theory, the price of each instrument fully reflects all available information, therefore denies the existence of poorly rated stocks. Against this doctrine stands the theory of behavioral finance, which describes, that individuals on financial markets do not always act in rational way, and their behavior is affected with emotions. This psychological phenomenon has the consequence that on the financial market are visible certain anomalies. There are a lot of explanations of these abnormalities. One of the assumptions is that the prices of instruments tend to rise more slowly than fall. This different is in my work explained by the theory of black swan - the existence of unexpected, but the price-setting information. Another psychological theory causing the abnormalities is called the round number effect, which describes that investors consciously or subconsciously tend to perceive the rounded amounts differently than others. Empirical results of my thesis largely demonstrated that the two psychological effects mentioned to some extend contribute to the existence of deviations from normal, and confirm the occurrence of irrationality on financial market.
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Speculative bubbles in financial markets
Roček, Jindřich ; Brada, Jaroslav (advisor) ; Kubát, Max (referee)
The bachelor thesis explores the phenomenon of speculative bubbles in financial markets. The aim is to define possible causes of speculative bubbles, and specify circumstances under which they can be prevented. The first chapter explains the essence of the examined phenomenon. In the following chapter, two theoretical approaches to the formation of asset prices in markets are explained, the efficient market theory and behavioral finance. The third chapter analyses causes, coarse and collapse of each individual bubble. The work uses twelve samples of asset price bubbles from history to meet the objectives. The final chapter examines the influence of government intervention and monetary policy on the formation of bubbles and proposes stemming recommendations for the responsible authority. The considerable complexity of the phenomenon and a large number of factors influencing price movements means that bubbles cannot be quantified ex ante. Given the current market conditions it is reasonable to expect further occurence of asset price bubbles in financial markets.
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The analysis of selected behavioral biases in the context of the stock market
Havlíček, David ; Musílek, Petr (advisor) ; Daňhel, Jaroslav (referee) ; Budinský, Petr (referee)
The thesis focuses on the partial synthesis of investment strategies based on the theory of efficient markets and behavioral finance. Model of investment behavior consists of three parts - the Markowitz model of portfolio approach , De Bondt - Thaler model of re-building portfolio by capital gains in past and a model of short-term behavioral biases. Parameters of behavioral biases are determined arbitrarily and calibrated using correlation analysis for stock index DJIA and the particular stock title. The assembled model of short-term behavioral biases can explain only about 1 percent of changes in market prices of assets and regression analysis doesn't confirmed their statistical significance. Better results were found in a particular stock title than the stock index. The model of investment behavior has shown that without taking into account transaction costs Markowitz model was the most successful, but taking into account the costs De Bondt - Thaler model was more successful. The model of behavioral biases couldn't even overcome market benchmark, but in terms of risk the model was the least risky. The overall model of investment behavior also suggested the possibility of prediction of financial crisis, which could also be a space for further research in this area. The synthesis would also be appropriate to explore also by other methods such as simulation or real survey.
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Use of Agent-Based Models in Investigation of Behavioral Finance Phenomena
Motloch, Pavel ; Havlíček, David (advisor) ; Matejašák, Milan (referee)
This Bachelor thesis joins two areas which currently attracted increased attention --- Behavioral Finance theory and agent based models. Goal of this work was to overcome deficiencies of known agent based models and to create a model focusing on decision-making of individual agents, optimally using findings of Behavioral finance. We managed to find such a model and proved that it is capable of reproducing basic statistical properties of market prices, which is a basic test of the quality of the model. Its further use in investigation of Behavioral phenomena is currently impossible, because we are not able to sufficiently constraint the space of parameters. At the end of the thesis we discuss how it would be possible to overcome this obstacle.
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Current models of liquid financial markets
Grosu, Iulia ; Stádník, Bohumil (advisor) ; Pumprová, Zuzana (referee)
The aim of this paper is to provide a comprehensive overview of selected current models of liquid financial markets, namely to explain their basic principles, assess their strengths and deficiencies and compare them with each other. The thesis is divided into six chapters. The first five chapters focus on the theoretical description of five different models, including their assumptions, the resulting consequences and, where possible, their mathematical formulation. The particular chapters also examine the major problems of the models and provide clear summaries and conclusions. Specifically, this paper discusses the efficient market hypothesis, models of behavioral finance, technical analysis, changing volatility models and dynamic feedback models. The last chapter compares the particular models.
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Financial market anomalies
Uherek, Jiří ; Havlíček, David (advisor) ; Janda, Karel (referee)
The bachelor thesis is focused on the most known financial markets anomalies. In the first part the efficient market hypothesis is described as traditional theory of finance. The most known financial markets anomalies are listed and analyzed in the second part of this thesis. In this part is also offered an explanation of these anomalies from the point of view of behavioral finance. The final section analyses particular anomaly -- the weekend effect. The analysis confirmed the occurrence of weekend effect on different markets. The conclusion based on research of several trading strategies is that there is not possible to gain excess return from knowledge of weekend effect. The analysis also confirmed the change of return patterns in last decade.
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