ICM302-Behavioural Finance

Module Provider: ICMA Centre
Number of credits: 20 [10 ECTS credits]
Level:7
Terms in which taught: Spring term module
Pre-requisites:
Non-modular pre-requisites:
Co-requisites:
Modules excluded:
Current from: 2020/1

Email: i.oikonomou@icmacentre.ac.uk

Type of module:

Summary module description:

This module is positioned in the cross-section of Finance and Psychology. It provides an alternative framework to that of traditional neo-classical finance principles in explaining market behaviour and interpreting stylised characteristics. A variety of psychological principles and well-established cognitive biases are examined and connections are made with the influence they have on the investment (and corporate) decision making process. Market anomalies and puzzles are interpreted based on these connections.

Aims:
Financial theories have traditionally assumed that rational, risk-averse investors trade in efficient and free-flowing asset markets. Academic research and practitioner experience have cast doubt on this paradigm, instead proposing that investors may not be utility maximisers, and that there may be impediments to the functioning of markets. This module will describe recent developments in the application of principles drawn from psychology to financial issues.

Assessable learning outcomes:

With this course students should be able to:

• Understand the motivations for, and uses of, behavioural finance.


• Explain why investors may not be utility maximisers and if so how they make their investment decisions.


• List a number of asset pricing anomalies and discuss the relative merits of rational versus behavioural explanations for them.


• Explain the importance of noise traders and investor sentiment in driving asset prices.


• Define and elucidate the nature of the various types of speculative bubbles that may arise in financial market.


• Suggest ways in which trading strategies could exploit the irrationality of other investors, and discuss the limitations of these strategies. 

Additional outcomes:
Be in a position to explain and implement the basic investment principles of professional behavioural finance wealth managers.

Outline content:

Topic 1: The origins of behavioural finance

Topic 2: The psychology of investing

Topic 3: Combining behaviour and finance

Topic 4: Asset pricing bubbles

Topic 5: Behavioural corporate finance, corporate governance and ethics

Topic 6: The economics of happiness

Brief description of teaching and learning methods:
Lectures will be used to discuss both theoretical material and practical examples. The seminars will discuss non-assessed problem sets, case studies, and research papers from the academic finance literature.

Summative assessment- Examinations:
No final examination

Summative assessment- Coursework and in-class tests:

Students will select their essay title from a list that will be provided and write an essay of 3,000 words (deadline at the last week of the term). An in class test takes place near the end of the term (week 8 or 9).

Formative assessment methods:

Penalties for late submission:
Penalties for late submission on this module are in accordance with the University policy. Please refer to page 5 of the Postgraduate Guide to Assessment for further information: http://www.reading.ac.uk/internal/exams/student/exa-guidePG.aspx

Assessment requirements for a pass:
A mark of 50% overall.

Reassessment arrangements:
Re-submission of essays in September.

Additional Costs (specified where applicable):

1) Required text books: Montier, J. (2009). Behavioural Investing: a practitioners guide to applying behavioural finance. John Wiley &Sons. £50-£65 2) Specialist equipment or materials: 3) Specialist clothing, footwear or headgear: 4) Printing and binding: 5) Computers and devices with a particular specification: 6) Travel, accommodation and subsistence:

Last updated: 4 April 2020