Review on Behavioral Finance with Empirical Evidence
DOI:
https://doi.org/10.47654/v25y2021i4p15-41Keywords:
prospect theory, heuristic, risk-seeking, behavioral biasAbstract
When many anomalies challenge efficiency market hypothesis and rationality, theories of behavioral finance are developed to investigate the psychological effects on human behaviors and how their cognitive biases explain why the market is inefficient, and anomalies exist. This review paper indoctrinates readers in the introductory concepts of behavioral finance with their prominent literature and empirical evidence. Behavioral finance is a fast-growing branch of financial economics, making this review paper beneficial to academics for developing leading-edge usages of financial theory that behavioral finance underlies, and for undertaking empirical studies on behavioral finance models. This paper is furthermore helpful to investors in making investment products and strategy choices that suit their risk preferences and behavioral traits predicted from behavioral models.
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