Wintersemester 24/25

There is abundant evidence suggesting that the standard economic paradigm of rational individuals does not perfectly describe behavior in financial markets. Behavioral Finance examines how individuals' attitudes and behavior affect their financial decisions. This course reviews research on psychological biases and non-standard preferences in investor behavior, highlights the link between individual behavior and market outcomes, and discusses some of the major empirical “puzzles” in financial markets for which standard finance theory provides no sufficient explanation.

Students

• are able to contrast normative finance theory (“How should market participants behave?”) with the findings of descriptive empirical finance research (“How do market participants actually behave?”),
• know the key insights of theoretical, experimental, and empirical behavioral economics research (“Why do market participants behave this way, and how can their behavior be predicted or changed?”),
• have a profound understanding of the link between individual behavior in financial markets and market outcomes such as trading volume or return patterns,
• can evaluate scientific studies accurately, understand the methodology used in leading papers of the field, can interpret estimation results correctly and analyze them critically,
• are in a position to identify starting points for their own research.

• An Introduction to Behavioral Finance
• Market Participants: Judgment Biases
• Market Participants: Purchasing and Selling Decisions
• Market Participants: Experience, Social Networks, Retirement Saving
• Linking Individual Behavior and Market Outcomes
• Markets: Efficiency and Limits to Arbitrage
• Markets: Event Studies
• Markets: Time Series Properties and Calendar Anomalies
• Markets: Cross-Sectional Predictability

As the course discusses partly recent research, there is no specific textbook that covers all aspects of the course. However, useful survey papers for this course are:

• Barber, B. M., & Odean, T. (2013): Chapter 22 – The Behavior of Individual Investors. In: Handbook of the Economics of Finance  (Vol. 2, pp. 1533–1570).
• Barberis, N., & Thaler, R. (2003): A survey of behavioral finance. Handbook of the Economics of Finance, (Vol. 1, pp. 1053-1128).
• Hirshleifer, D. A. (2015): Behavioral finance. In: Annual Review of Financial Economics (Vol. 7, pp. 133-159).

The module-related examination is performed by a written test (usually 60-90 minutes).

Students are assumed to have undergraduate level knowledge of finance and economics. Some basic knowledge of statistics/econometrics is helpful to understand empirical research conducted in the research papers, which the course content is based on. A sufficient level of spoken and written English language skills is necessary.

You can access the Moodle course via the password in the materials below after a login. Enrollment in the Moodle course is only possible within the respective semester (01.10.202 - 31.03.2025).

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