TOWARDS BEHAVIORAL FINANCE THEORY

Teodor Sedlarski and Gabriela Georgieva
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Gabriela Georgieva: Faculty of Economics and Business Administration, Sofia University St Kliment Ohridski

Yearbook of the Faculty of Economics and Business Administration, Sofia University, 2018, vol. 15, issue 1, 207-241

Abstract: This article summarizes fundamental concepts in the emerging field of behavioral finance theory. Traditional financial models are being extended with behavioral ones, which assume that markets are inefficient, market players are boundedly rational and investment bubbles exist, potentialy leading to large scale financial crises. Behavioral finance enhances main theoretical elements of the contemporary financial paradigm – the portfolio theory, the capital asset pricing model and the efficient market hypothesis, substituting them with behavioral portfolio theory, behavioral asset pricing model and the adaptive market hypothesis. These are briefly analyzed in the article, as well as various known heuristics and financial market anomalies.

Keywords: prospect theory; behavioral finance; heuristics; behavioral asset pricing model. (search for similar items in EconPapers)
JEL-codes: D03 G02 G11 (search for similar items in EconPapers)
Date: 2018
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