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Theory of behavioral finance
Vopasek, Luboš ; Kuncl, Martin (advisor)
Theory of behavioral finance combines psychology and finance theory. Main goal of thesis is to describe basic psychological factors influencing economic and financial behaviour. Thesis also focuses on so-called financial puzzles which are empirical phenomenons inconsistent with traditional finance theory such as efficient market hypothesis.
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Analysis of calendar effects on the Prague Stock Exchange
Janek, Libor ; Havlíček, David (advisor)
This bachelor thesis is focus on the efficient market theory, the behavioral finance and on the testing of various calendar effects in the capital markets. In the first chapter the efficient market theory is described, followed by the explanation of the behavioral finance in chapter two. In the analytical part, effect of day in week (the Monday effect or week effect), effect day in month and effect month in year (the January effect) are examined on the PX index using data from the Prague Stock Exchange.
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Information as a basis for stock trading
Mixánek, Lukáš ; Rosický, Antonín (advisor) ; Matuštík, Ondřej (referee)
The objective of the thesis is to characterize the importance of information and consequently also of knowledge as the bases for active dealing in the stock market. The fundamental terms of information credibility, disinformation and information asymmetry, which have a cardinal effect on behaviour of particular participants of the market, are mentioned in the thesis. The theory of effective markets and the factors due to which it is not able to explain the development and the real state of the contemporary stock markets, are analysed in more detail in the thesis. A considerable part of the thesis is devoted to the analysis and the definition of information need as a basic requirement for making successful investment decisions of an individual, whereas ways to its fulfilment are implied -- including a description and a division of available information sources. The description and the analysis of several dealing strategies which are directly based on usage of various kinds of information are not missing in the thesis. A part of the work is a presentation and an analysis of the results of a research made among real investors.
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Financial market anomalies
Gavrylyuk, Zinayida ; Havlíček, David (advisor)
This bachelor thesis is focused on the analysis of some well-known financial market anomalies. The first part deals with the efficient market theory which is confronted with the basic ideas of behavioral finance. It is followed by the more-detailed description and analysis of three selected anomalies: the December effect, the momentum effect, and the underpricing of IPO. Analytical part tests the occurrence of anomalies on selected equity markets and deals with the possibilities to exploit them. There was not found any statistically significant evidence of influence of the December effect and the momentum effect on stock returns. But there were found significant differences in underpricing of IPO across sectors of the U. S. industry. The thesis provides an overview of the characteristics and occurrence of selected market abnormalities and opens the door to a more detailed analysis.
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Underpricing and the Long-Run Underperformance of IPOs
Pindroch, Michal ; Musílek, Petr (advisor) ; Witzany, Jiří (referee)
When companies go public, the shares they sell tend to be underpriced, and thus exhibit a significant price jump on the first day of trading. As a result, IPO investors materialize significant first-day returns. In the long-run, however, relative to some benchmark, investors appear to lose out by continuing to hold the stocks of firms that have recently gone public. These IPO phenomena are subject of the following study. The thesis addresses two main objectives. First, it systematically surveys relevant empirical evidence and theories that have been proposed to explain IPO underpricing and long-run underperformance. In addition, both anomalies are studied form the viewpoints of two competing finance theories: efficient market hypothesis and behavioral finance. Theories of underpricing are grouped within two broad categories: asymmetric information based models and behavioral theories. While asymmetric information based models assume that one of the IPO transaction parties knows more than others, and that these information frictions give rise to underpricing, behavioral explanations, on the other hand, assume the presence of irrational investors who are the prime cause of underpricing. Theories of poor long-term performance are based on behavioral finance perspective only, where "investor sentiment" plays the main role. On the contrary, proponents of market efficiency strongly argue that the notion of systematic IPOs long-run underperformance is spurious. Secondly, the thesis empirically examines the presence of underpricing and the long-performance of IPOs in European NYSE Euronext markets. In general, the results undoubtedly show that IPOs in the sample are moderately underpriced on average. However, the assessment of IPOs long-run performance provides contentious findings and probably requires further research.
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Equity home bias in the Czech Republic
Báťa, Karel ; Šmíd, Martin
Investors reveal a tendency to prefer domestic over foreign equities despite the financial losses. From institutional perspective the factors that cause home biasness are the barriers to entry the foreign markets, transaction costs, illiquidity, asymmetric information and information costs, corporate governance and inflation and exchange rate risks. Behavioral finance argues that irrationality of investors cause the home biasness. Investors tend to be under the influence of psychological biases: optimism, overconfidence, social identity, narrow framing and loss aversion. In this paper we introduce a model of optimal portfolio of Czech investors with three utility functions: Markowitz, exponential and CRRA. The prediction of the model without short selling suggests that Czech investors should have more than 60 % (between 72 - 83 % for feasible levels of risk aversion) in domestic equities. The OECD data claim that they hold around 87 % in domestic equities.
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The Causes of Formation of the Price Bubbles in the Capital Markets
Šimíček, Petr ; Dočkal, Dalibor (advisor) ; Řežábek, Pavel (referee)
This study analyses, why and how price bubbles are made on the capital markets, how different economical theories see their development and implications, how these theories could predict them and which impact bubbles have on the economy as whole and separated markets. Special accent is given on the paradigm of the behavioral finance, theories flowing from the Austrian school, fundamental analysis and other indirect factors. These problems are (in connection with nowadays world financial crisis) widely discussed among economists. The problem of price bubbles was in focus during 20's, 30's, 70's and 90's. The last part tries to find out a difficult way, how to prevent bubbles and what possibilities are during the attempts to find them. This paper operates with deduction and economical analysis method. Conclusion summarizes the results and tries to outline future development.
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Theory of behavioral finance
Šulc, Miroslav ; Kuncl, Martin (advisor)
The bachelor thesis is dedicated to behavioral finance and it's application. The thesis describes evolution of the theory till present. Theories are introduced, which forego behavioral finance, for example Expected utility theory. Just as well the newest discipline, neuroeconomics, is outlined. The application part of the thesis analyse bubble on technological market in USA 1995-2000.
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Stock Price Bubbles
Li, Xiaokun ; Musílek, Petr (advisor) ; Veselý, Marek (referee)
Economic bubbles are playing an increasingly significant role in the current global economy. We believe these bubbles are to a certain extent dominating the real economy, and, therefore, research based on this specific economic phenomenon is becoming increasingly popular and important. The focus of this master's thesis is based upon analysis of stock price bubbles. This thesis contains author analyzed historical cases representative of stock price bubbles; summarizations of their traditional features; common factors causing their formation; and reasons leading to their bursting. Solutions to the dilemma of stock price bubbles are discussed in depth, and emphasis is placed upon clearly deciphering different theoretical approaches regarding this phenomenon-not only from the efficient market hypothesis viewpoint but also from the perspective of behavioral finance. The research contains testing and measuring methodologies of stock price bubbles, and the author's view concerning them is strongly supported by the results within the empirical data-testing chapter. Upon reading, one can expect to achieve a basic overview of this forefront science.
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The behavior of stock rates in view of behavioral finance
Havlíček, David ; Musílek, Petr (advisor) ; Veselá, Jitka (referee)
Thesis deals with analysis and interpretation of movements of share rates in the view of behavioral finance. It examines how investor psychology, as one man, and the characteristics of the crowd and their influence on the behavior of the markets. This work represents some of the theoretical concepts of behavioral finance, which are contrary to the postulates of the theory of efficient markets, as well as empirical evidence on market anomalies that serve as the basis of arguments advocates of behavioral finance. The theoretical parts are dismembered some of the main influences acting on the psychology of investors, with a strong emphasis on the scarcity of arbitration, and some selected problems of the theory. In the practical part in the three experiments proven results confirming the interpretation of behavioral finance.
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