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Behavioral Finance

Code: 2MiF22     Acronym: FC

Classification Keyword
OFICIAL Management Studies

Instance: 2020/2021 - 2S Ícone do Moodle

Active? Yes
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 46 Official Syllabus after 2020-2021 1 - 3 21 81

Teaching Staff - Responsibilities

Teacher Responsibility
Júlio Fernando Seara Sequeira da Mota Lobão

Teaching - Hours

Theoretical and practical : 1,50
Type Teacher Classes Hour
Theoretical and practical Totals 1 1,50
Júlio Fernando Seara Sequeira da Mota Lobão 1,50

Teaching language



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 generally efficient. However, recent studies suggest that markets are not 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 model investor and manager behavior in order to get a better understanding of the financial phenomena. The purpose of this course is to introduce the students to the new 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 to apply these concepts across a range of different economic environments.

Working method





1. Behavioral Finance vs. Rational Finance

 1.1. How do we decide?

 1.2. Definition of behavioral finance

 1.3. The behavioral-rational debate in financial economics



2. Weaknesses of the Rational Paradigm

 2.1. Concepts of market efficiency

 2.2. The impact of information on prices

 2.3. Weaknesses of the rational paradigm

 2.4. Empirical evidence



3. Investor Behavior

 3.1. Emotional and cognitive biases

 3.2. The role of emotion in decision-making

 3.3. The impact of external factors

 3.4. Herding behavior

 3.5. Empirical evidence



4. Limits to Arbitrage

 4.1. The importance of arbitrage

 4.2. Limits to arbitrage

 4.3. Empirical evidence

 4.4. An assessment: theories in Finance



5. Alternative Asset Pricing Models

 5.1. The impact of heterogeneous investors

 5.2. The survival of non-rational investors in the market

 5.3. Behavioral models

 5.4. Models with heterogeneous expectations



6. The Human Factor in Corporate Finance

 6.1. Biased managers

 6.2. Biased Entrepreneurs

 6.3. Biased financial decisions in the firm

 6.3.1. Capital budgeting decisions

 6.3.2. Financing decisions

 6.3.3. Dividend decisions

 6.3.4. Mergers and acquisitions

 6.4. Rational managers and non-rational investors



7. 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 lecture and discussion. Theories, practices, and real-world examples will be examined and analyzed.

Evaluation Type

Distributed evaluation with final exam

Assessment Components

Designation Weight (%)
Exame 50,00
Participação presencial 10,00
Trabalho escrito 40,00
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

Distributed evaluation with final exam. Grades will be based on the final exam (50%), group work (40%) and class participation (10%). The students are required to have done the group work in order to have access to the final exam (article 9, n. 1, a) of the grading rules)

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