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.
Page
1051 ‐ 1121
Year
2003
Contributed
Constantinides, Harris et al. (ed.) 2003 – Handbook of the Economics
Keywords
behavioral finance,investor behavior,limits to arbitrage,market efficiency,psychology
Categories
Behavioral Insurance
