Explaining Stock Market Crashes: A Behavioral Finance Approach

Marcus Schulmerich, Yves-Michel Leporcher and Ching-Hwa Eu
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Marcus Schulmerich: State Street Global Advisors (SSgA)
Yves-Michel Leporcher: Crédit Agricole
Ching-Hwa Eu: Deutsche Bank

Chapter 5 in Applied Asset and Risk Management, 2015, pp 355-413 from Springer

Abstract: Abstract This chapter is devoted to behavioral finance. It sketches the historical development of this field of research which focuses on the impact of behavioral biases on investment decisions. Key bi ases which are relevant for stock market crashes are introduced: availability bias, representativeness bias, herding bias, overoptimism bias, overconfidence bias, anchoring bias and prospect theory. The chapter ends with using these biases for explaining the October 1987 crash.

Keywords: Stock Market; Institutional Investor; Prospect Theory; Loss Aversion; Positive Feedback Trading (search for similar items in EconPapers)
Date: 2015
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Persistent link: https://EconPapers.repec.org/RePEc:spr:mgmchp:978-3-642-55444-5_5

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DOI: 10.1007/978-3-642-55444-5_5

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