Financial Behaviour Case Study: Financial Markets and Decisions

This case study examines financial behaviour, focusing on market anomalies, fake news, and cognitive and emotional biases. It begins by defining financial behaviour and its importance, then delves into market anomalies like small-firm effects, low book value, and reversals, explaining their impact and potential for predicting market trends. The study then explores fake news in financial environments, providing examples and outlining methods for identifying and mitigating its influence, along with discussing information manipulation techniques. Finally, it analyzes cognitive and emotional biases, such as confidence bias, loss aversion, and self-attribution bias, and their effects on investment decisions. The conclusion emphasizes the importance of understanding these factors for effective financial management and decision-making.

FINANCIAL BEHAVIOUR
CASE STUDY

TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................3
PART 1............................................................................................................................................3
Financial market anomalies and financial bubbles.....................................................................3
PART 2............................................................................................................................................4
Fake news and information manipulation in financial environment...........................................4
PART 3............................................................................................................................................6
Cognitive and emotional biases and its influence on decision making.......................................6
CONCLUSION................................................................................................................................7
REFERENCES................................................................................................................................8

INTRODUCTION
The financial behaviour is being defined as the concept which states that how well the
person or the business can manage and use the financial resources in better and effective manner.
Having a good financial behaviour is very essential for the success of the business or the person
as they will be in position of optimally uses the financial resources. The present study is based on
the analysis of the financial behaviour case study. This will involve the financial market
anomalies within the real financial market. Along with this the discussion will take place relating
to fake news and information which is manipulated in financial market. In the end the cognitive
and emotional biases will be discussed and their impact on decision making.
PART 1
Financial market anomalies and financial bubbles
The financial market anomalies are defined as the different situations when the security
or the group of security are performing contrary to the notion of market (Rai, Dua and Yadav,
2019). There are different types of market anomalies present in the economy which affects the
working and decision making of the business. The common financial market anomalies are as
follows-
The small firms tends to outperform that is small companies that is who have small
capitalization amount sometimes outperform than the large companies. This is pertaining to the
fact that the success of company is defined by the economic growth and growth opportunity for
small companies is more. For instance, Microsoft need 4 billion in sales to grow by 5 % but a
small company might be possible that require 80 million in sales to have same growth rate.
Low book value is another type of market anomalies which exist and this states that
stocks which are below average price as compared to book ratio then it will outperform. This is
pertaining to the fact that cheap stocks tend to attract more and because of this low price stocks
are beating market performance.
In addition to this another major market anomaly is the reversals which is very common
in the financial market (Loibl, 2017). This is the most common anomaly which states that the
stock which is highest today can reach to the lowest next time. This is pertaining to the fact that
prices of the stocks is totally dependent over the market condition which are not static and

because of this there are many different issues and due to this the prices of stocks fluctuates to a
great extent.
These entire examples are market anomalies because it is related with the concept of
anomalies (Pinjisakikool, 2018). This is pertaining to the fact that anomaly states that something
different and in these entire three situation the thought results are not being presented and
opposite of it happened. In all the three situations the anomalies are present and due to this the
thought result did not happened and reversal of it occurred. For instance in reversal anomaly the
opposite of the thought thing happened. Like when it was assumed that stock price will rise but
at that time the opposite of it happened that is stock prices reduced.
Hence, the understanding of the market anomalies is very essential as this will assist the
investor in first analysing and evaluating the market and then invest. Thus, this will increase
knowledge of investor and they will not be misguided or mislead by the fraudulent people
present in the financial industry. All these examples of market anomalies is an opportunity in
order to identify the formation of market anomalies and try to predict the market that what can
happen in future. This is pertaining to the fact that with help of the market anomalies the person
can analyse what will happen and this will assist them in taking proper and effective decision
relating to the investment which they need to be do. Hence, this will help the people in saving
themselves from the fraud and bubbles which are taking place in the financial industry. Also, this
will assist them in saving themselves from the unnecessary losses that may happen and occur
with them.
PART 2
Fake news and information manipulation in financial environment
Fake news affects the working of the financial market to a great extent and all these
affects the economic condition and working of the different companies. This fake news can
impact the business, society, environment and the society itself. Hence, it is necessary that
companies in financial industry must not create fake news as this will affect the whole of the
industry and the external environment (Guerard and Mark, 2021).
The example of fake news involves the following-
 70 News which is a WordPress hosted the site which provided fake news stating that
Donald Trump has won the popular vote in the year 2016 US presidential elections.

 In addition to this another example states of American news published the false news that
Denzel Washington has endorsed Trump for president. This was a fictional headline and
was publicised over social media.
 Along with this Conservative 101 falsely claims that White House has fired Kellyanne
Conway but in actual it did not happen.
The common features of fake news involve the most common aspect that is factually
incorrect data (Guerard and Markowitz, 2018). This is pertaining to the fact that in all the above
fake news most common thing is that it involves inappropriate data. Along with this another
common feature of all the three fake news is that these are meant for distorting emotions and
feeling of the people and affecting their thinking and perception.
For identifying the fake news there is some of the requirement of the news to be checked.
This involves the following-
 Firstly to analyse and evaluate the source from which the information is being released.
This simply means that checking the source that whether it is trustworthy and reliable or
not.
 The second factor to define that whether news is fake or not is that analyse the facts and
content of the news that is whether it is relevant and reliable or not.
 In addition to this next thing comes is the checking of the images and photographs being
attached with the news. This is necessary as the deeper analysis will assist the person in
analysing the fact that whether photos are real or not and if not then it means that news is
fake.
 Along with this, there is also a model which can be assistive in identifying that whether
the news is fake or not. This model is FACT that is Find, Assess, Create and Target.
Under this model or concept firstly all the news are being monitored that whether they
are correct and is being available on all the public news sharing platform and social
media. After that it is assessed that whether the news is correct or there are any chances
of news being fake (Ahmed and Boutheina, 2017). After that new content is being created
with the actual facts and balances the news in such a manner that it is corrected and
presented. In the end the last stage is the target that is targeting the content that it is in
accordance with the prescribed manner and no fake element is present in the news.

The data or information manipulation is being defined as the changing of information and facts
and figures in order to meet any other objective with same data set. The six different ways in
which information manipulation can take place are as follows-
1. Photo manipulation is a type through which information can be manipulated and with
help of this anything can be changed and meaning can be drawn in different manner by
the other person (Six fake news techniques and simple tools to vet them, 2021).
2. In addition to this twisting the facts is another method through which information and
data can be manipulated. This is pertaining to the fact that information can be used in
many different manners and this will affect the working of data.
3. With help of different video tricks as well the data or information can be manipulated.
This is pertaining to the fact that currently it is technologically advanced era and because
of this there are many ways through which data can be manipulated.
4. Along with this guidance and advice of the misrepresented experts can be taken and with
their help the data can be changed and mould in different manner.
5. Moreover, with help of the different types of technology and media also the data can be
manipulated and different meaning can be drawn from the same set of data.
6. At last the manipulation of the data can be undertaken by the intention or purpose of the
user of data as well (Kogan, Moskowitz and Niessner, 2019).
In the end it can be stated that in any of the case the reaction of the other person will be the same
and they will not like the fact that distorted information is being shared to them and will not trust
the other news.
PART 3
Cognitive and emotional biases and its influence on decision making
For a person at time of taking decision there are a lot of different types of biases which
affects the working and decision making of person to a great extent. These biases divert the mind
of the person and they are in dilemma that which decision must be taken correct or not (Kogan,
Moskowitz and Niessner, 2017). At time of investing decision also there are different biases
which affect decision making and these are as follows-
 Confidence bias- this is a type of cognitive bias wherein the person emphasises on the
opinion of those people who agree to them. At the time of the investing decision as well the

person are biased with thoughts of those people who agrees with the particular investment
option.
 Loss- aversion bias- this comes under the category of emotional bias and under this bias the
person who have stock portfolio and a stock comes down (Verstraete, Bambauer and
Bambauer, 2017). Then the person have the feeling that one of their stock from the portfolio
is coming down and because of this they sell it and invest that money in other stock which is
doing well. This bias affect the decision making of the person as when they think that there
will be loss in any of the stock then they decide to sell and purchase the other good working
stock.
 Self- attribution bias- this is also a type of emotional bias wherein the person for every good
outcome takes the credit of their action and for every bad outcome blames the external
forces. This will affect the decision as when the things will be going good then this will
motivate the person to invest more in that particular aspect and of not then they will blame
the other people (Ciccarelli and et.al., 2017).
At last it can be stated that all these bias affect the decision making of the person to a great extent
and because of this there are possibility that at the end moment the decision of the person may
change pertaining to the investment option.
CONCLUSION
The above report summarised that fact that financial behaviour is referred to as a concept
which states that how a person need to behave in order to manage and allocate finance in
optimum manner. The reason underlying this fact is that finance is already a scarce resource and
if this will not be used in proper manner then this will affect its utilisation. The present study
evaluated the fact that market anomalies are assistive in predicting the future market trends as
this guides the person that what can happen next. Along with this it was evaluated that fake news
affects the financial market working to a great extent. Also it was identified that with help of
FACT model that fake sources of information can be identified. In the end it was analysed that
there are some emotional and cognitive bias which affects decision making like self- attribution,
loss aversion and others.

REFERENCES
Books and Journals
Ahmed, B. and Boutheina, R., 2017. Financial market anomalies: Evidence from Tunisia stock
market. Asian Journal of Empirical Research, 7(9), pp.238-250.
Ciccarelli, M., and et.al., 2017. Decision making, cognitive distortions and emotional distress: A
comparison between pathological gamblers and healthy controls. Journal of behavior
therapy and experimental psychiatry, 54, pp.204-210.
Guerard, J. and Mark, A., 2021. Earnings forecasts and revisions, price momentum, and
fundamental data: Further explorations of financial anomalies. In HANDBOOK OF
FINANCIAL ECONOMETRICS, MATHEMATICS, STATISTICS, AND MACHINE
LEARNING (pp. 1151-1209).
Guerard, J. and Markowitz, H., 2018. The existence and persistence of financial anomalies: What
have you done for me lately?. Financial Planning Review, 1(3-4), p.e1022.
Kogan, S., Moskowitz, T.J. and Niessner, M., 2017. Fake News in Financial Markets. Working
Paper, Yale University.
Kogan, S., Moskowitz, T.J. and Niessner, M., 2019. Fake news: Evidence from financial
markets. Available at SSRN 3237763.
Loibl, C., 2017. Living in poverty: Understanding the financial behaviour of vulnerable groups.
Economic psychology, pp.421-434.
Pinjisakikool, T., 2018. The influence of personality traits on households’ financial risk tolerance
and financial behaviour. Journal of Interdisciplinary Economics, 30(1), pp.32-54.
Rai, K., Dua, S. and Yadav, M., 2019. Association of financial attitude, financial behaviour and
financial knowledge towards financial literacy: A structural equation modeling
approach. FIIB Business Review, 8(1), pp.51-60.
Verstraete, M., Bambauer, D.E. and Bambauer, J.R., 2017. Identifying and countering fake news.
Arizona Legal Studies Discussion Paper, (17-15).
Online
Six fake news techniques and simple tools to vet them. 2021. [Online]. Available through: <
https://gijn.org/six-fake-news-techniques-and-simple-tools-to-vet-them/ >