AEM 5230 - Behavioral Finance

Fall. 3 credits. Letter grades only (no audit).

Prerequisite: AEM 2240 or equivalent. Enrollment preference given to: MPS-AEM students. Co-meets with AEM 4230.

L. Jin.

The traditional framework for thinking about financial markets assumes that all market participants are fully rational. The past four decades have seen the emergence of an important new paradigm, behavioral finance, which argues that many financial phenomena are the result of less than fully rational thinking and which draws on psychology to understand the ways in which people are not fully rational. This course provides an introduction to the field. We revisit basic topics in finance from a behavioral finance perspective: topics related to markets (stock market fluctuations, popular investment strategies, bubbles); topics related to investor behavior (poor investment decisions by households); and topics related to corporate finance (security issuance, mergers and acquisitions). A running theme in the course is that knowledge of behavioral finance is essential for anyone who seeks a full understanding of modern financial markets.