THE IMPACT OF BEHAVIORAL FINANCE ON STOCK MARKETS

Felicia Ramona Birău
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Felicia Ramona Birău: UNIVERSITY OF CRAIOVA, FACULTY OF ECONOMICS AND BUSINESS ADMINISTRATION

Annals - Economy Series, 2012, vol. 3, 45-50

Abstract: This article presents a new approach in the analysis of capital markets, namely behavioral finance. Behavioral finance is the study of the influence of the psychological factors on financial markets evolution. Financial investors are people with a very varied number of deviations from rational behaviour, which is the reason why there is a variety of effects, which explain market anomalies. Classical finance assumes that investors are rational and they are focused to select an efficient portfolio, which means including a combination of asset classes chosen in such a manner as to achieve the greatest possible returns over the long term, under the terms of a tolerable level of risk. Behavioral finance paradigm suggests that investment decision is influenced in a large proportion by psychological and emotional factors.

Keywords: behavioral finance; classical finance; market efficiency; investment decision; psychological factors; capital market; rational behavior (search for similar items in EconPapers)
Date: 2012
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