IIMA - Course Catalogue
Finance and Accounting
Prof. Joshy Jacob
Course Description & Objectives
Behavioral finance attempts to understand financial markets and corporate finance with models built on the assumption that at least some of the market participants depart from perfect rationality. With assumptions grounded in human psychology, it offers more realistic models of financial decision-making under certain market contexts. Behavioral finance offers valuable insights into the investment and trading behavior of individuals and market outcomes.
The course discusses the important models of investor-level behavior and the aggregate market behavior. The initial part of the course presents evidence from the financial markets, which contradicts the notion of risk and return as the sole basis for pricing financial assets. It is followed by a discussion of the limitations to achieve high levels of pricing efficiency in the financial markets through arbitrage. The course then go on to discuss various models of behavioral decisionmaking driven by heuristics and biases. The course concludes with a discussion of the trading strategies, product designs, and corporate finance decisions inspired by the behavioral finance approach. Overall, the course endeavors to broaden participants’ understanding of financial markets.
Most of the sessions shall be taught through discussions and cases, supplemented by lectures. A few sessions shall also have in-class experiments to illustrate markets outcomes when investors are driven by biases and heuristics.
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