Behavioral Finance

Code:

2MiF22

Acronym:

FC

Keywords
Classification	Keyword
OFICIAL	Management Studies

Instance: 2024/2025 - 2S

Active?	Yes
Responsible unit:	Management
Course/CS Responsible:	Master in Finance

Cycles of Study/Courses

Acronym	No. of Students	Study Plan	Curricular Years	Credits UCN	Credits ECTS	Contact hours	Total Time
MIF	42	Official Syllabus after 2020-2021	1	-	3	21	81
MIM	10	Official Syllabus after 2021-2022	1	-	3	21	81

Teaching language

English

Objectives

Over the past several decades, financial theory has been based on the assumption that investors and managers are generally rational and that the prices of securities are usually efficient. However, empirical evidence suggests that markets are not always efficient and that investors and managers are not fully rational. Behavioral finance offers a more realistic view of economic agents’ decision-making. It argues that many facts about asset prices, investor behavior, and managerial behavior are best understood using models where at least some agents are not fully rational. In particular, behavioral finance uses psychological evidence to understand financial phenomena better. This course aims to introduce students to the field of behavioral finance.

Learning outcomes and competences

Upon completion of this course, students will be able to have a good understanding of the major concepts of behavioral finance and apply these concepts across a range of different economic environments.

Working method

Presencial

Program

 

 1. Behavioral Finance vs. Rational Finance

 1.1. How do we decide?

1.2. Behavioral Finance and market efficiency

   

2. Investor Behavior

2.1. Emotional and cognitive biases

2.2. The role of Emotion in decision-making

2.3. The impact of external factors

2.4. Herding behavior

2.5. Empirical evidence

 

3. Limits to Arbitrage

3.1. The importance of arbitrage

3.2. Limits to arbitrage

3.3. Empirical evidence

3.4. An assessment: theories in Finance

 

4. Alternative Asset Pricing Models

4.1. The impact of heterogeneous investors

4.2. Behavioral models

4.3. Models with heterogeneous expectations

 

5. The Behavioral Perspective (way) beyond Finance

 

Mandatory literature

Lobão, Júlio; O Factor Humano na Decisão Empresarial, Editora Actual, 2013
Lobão, Júlio; Finanças Comportamentais – Quando a Economia encontra a Psicologia , Editora Actual, 2012
Lobão, Júlio; Behavioural Corporate Finance, Cambridge Scholars Publishing, 2016. ISBN: 978-1-4438-8517-1
Baker, Kent; Nofsinger, John; Behavioral Finance: Investors, Corporations, and Markets, John Wiley & Sons, 2010

Complementary Bibliography

Shleifer, Andrei; Inefficient Markets: An Introduction to Behavioral Finance, Oxford University Press, 2000
Shiller, Robert; Irrational Exuberance, Crown Business, 2006

Teaching methods and learning activities

The class will be a mixture of lectures and discussions. Theories, practices, and real-world examples will be examined.

Evaluation Type

Distributed evaluation with final exam

Assessment Components

Designation	Weight (%)
Exame	65,00
Trabalho escrito	35,00
Total:	100,00

Amount of time allocated to each course unit

Designation	Time (hours)
Frequência das aulas	0,00
Total:	0,00

Eligibility for exams

Distributed evaluation with no final exam.

Calculation formula of final grade

Grades will be based on the exam (65%) and group work (35%). The students are required to have done the group work to have access to the exam (article 9, n. 1, a) of the grading rules.

Classification improvement

Retake exam.

Observations

There will be no exam in the regular exam period ("época normal") as the test will take place during the last class of the course.