Behavioral Finance Foundations
2h 1mBeginner2019-11-21
Authors
Michael McDonald
Researcher and Professor of Finance at Fairfield University
Course details
When it comes to money, even the most rational people can be swayed by bias and emotion. Behavioral finance uses psychology to explain why investors make bad financial decisions. In this course, professor Michael McDonald explores the basics of behavioral finance and how it impacts market performance as well as individual decision-marking and personal investment strategy. Learn how personal history, appetite for risk, and difficulty with probability estimation impact investing and the different financial vehicles available to mitigate risk. Discover how biases such as anchoring and framing affect investors, and how sentiment and anomalies impact the stock market. Finally, learn practical investment strategies to remove bias and make sure you are making sound trading decisions.
Learning objectives
Identify the most preferential stock option in a given situation.
Explain what the VIX track.
Recognize the effects of anchoring on trade value.
Summarize the characteristics of overconfidence.
Explain how home bias affects a portfolio.
List three factors to consider when deciding whether to sell.
Recognize situations in which it becomes a good idea to sell a stock.
Learning objectives
Identify the most preferential stock option in a given situation.
Explain what the VIX track.
Recognize the effects of anchoring on trade value.
Summarize the characteristics of overconfidence.
Explain how home bias affects a portfolio.
List three factors to consider when deciding whether to sell.
Recognize situations in which it becomes a good idea to sell a stock.
Skills covered
Corporate FinanceFinance and AccountingFoundations
Concepts
0. Introduction
- 01 - Behavioral finance and the stock market
- 02 - Disclaimer - Warning
- 03 - What you should know
1. Behavioral Basics
- 04 - What are behavioral biases
- 05 - Rational decision-making
- 06 - Estimating probabilities of outcomes
- 07 - Risk-neutral pricing
- 08 - Risk aversion and investing
- 09 - Call options and skewness
- 10 - Put options and risk aversion
- 11 - The VIX
2. Behavioral Finance and Investing
- 12 - Behavioral biases in investing
- 13 - Anchoring and investing
- 14 - Framing and investing
- 15 - Overconfidence and investing
- 16 - Short-term momentum, long-term reversal
- 17 - Sentiment in stocks
- 18 - Institutional and retail investors
- 19 - Socially conscious investing
- 20 - Sin stocks
- 21 - Fundamental analysis of stocks
3. Stock Market Anomalies
- 22 - Stock market anomalies
- 23 - IPO underpricing
- 24 - The January effect
- 25 - Home bias
- 26 - Merger arbitrage
- 27 - Post earnings announcement drift
- 28 - Financial statement analysis for firms
4. Behavioral Investing Strategies
- 29 - Individual investor performance
- 30 - Deciding when to sell a stock
- 31 - Big picture selling rules
- 32 - Best practices in buying and selling
- 33 - Short-term trading tactics
Conclusion
- 34 - Next steps