A Survey of Behavioral Finance

Nicholas Barberis and Richard H. Thaler

No 9222, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: Behavioral finance argues that some financial phenomena can plausibly be understood using models in which some agents are not fully rational. The field has two building blocks: limits to arbitrage, which argues that it can be difficult for rational traders to undo the dislocations caused by less rational traders; and psychology, which catalogues the kinds of deviations from full rationality we might expect to see. We discuss these two topics, and then present a number of behavioral finance applications: to the aggregate stock market, to the cross-section of average returns, to individual trading behavior, and to corporate finance. We close by assessing progress in the field and speculating about its future course.

JEL-codes: G11 G12 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-evo and nep-fin
Date: 2002-09
Note: AP CF
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