Behavioral Finance: A Literature Review

PRECIS
FINANCE

LITERATURE REVIEW
Behavior is the study of the influence of psychology on the behavior of finance investors or
financial analysts. It also includes the impact on markets. It focuses on the fact that investors are
not always rational, there is a limit to their self-control, and they are influenced by their own
biases. Under the behavioral finance challenge (especially on EMH and CAPM) the question of
theory and background formation in modern financial theory. On the occasion of game theory
and experimental economics, behavioral finance theory is accepting mainstream economics,
from the traditional way of life to studying paradigm-focused mechanics of complex nonlinear
conversion, constructing, studying human individual and group behavior of growing importance.
Contributing to the financial theory and practice we see may drain. Behavioral finance theory
will be included in the study of human psychology and behavioral finance framework, but
because of the difficulty involved in human psychology and behavior coupled with behavioral
finance has just begun, there are many flaws of its own.
Behavioral Portfolio Theory and Behavioral Asset Pricing Model; some researchers believe that
behavioral finance theory is completely unfair as opposed to the theory of behavioral finance and
modern financial theory. The perfect two for modern financial theory, the alliance, is becoming a
research direction of these researchers. BPT is developed based on modern portfolio theory
(MPT). MAPT investors should focus on optimal portfolio allocation in the entire portfolio,
mean variance efficient frontier. BPT investors think they actually build a pyramid of assets
based on the level of understanding of the portfolio, different behavioral risk, the combination of
assets and the purpose of the formation of the investment, it cannot be done in fact, pyramid
layers asset specific goals and risk Are associated with attitudes, and the relationship between
layers is ignored. BAPM is the capital asset pricing model (CAPM) extension.
Behavioral finance seeks to explain financial phenomena based on non-rational behavior
amongst investors:
People do not like to do logical analysis of the available information. This condition leads to
errors. To reduce them to take into account, and the principle of behavioral finance was invented.