1、 1 本科毕业论文外文 外文题目： Behavioral Finance 出 处 Pacific-Basin Finance Journal Vol.11， No.4，(September 2003)pp.429-437 作 者： Jay R.Ritter 原 文： Behavioral Finance This article provides a brief introduction to behavioral finance. Behavioral finance encompasses research that drops the traditional assumptions of
2、 expected utility maximization with rational investors in efficient markets. The two building blocks of behavioral finance are cognitive psychology (how people think) and the limits to arbitrage (when markets will be inefficient).The growth of behavioral finance research has been fueled by the inabi
3、lity of the traditional framework to explain many empirical patterns, including stock market bubbles in Japan, Taiwan, and the U.S. 1. Introduction Behavioral finance is the paradigm where financial markets are studied using models that are less narrow than those based on Von Neumann-Morgenstern exp
4、ected utility theory and arbitrage assumptions. Specifically, behavioral finance has two building blocks: cognitive psychology and the limits to arbitrage. Cognitive refers to how people think. There is a huge psychology literature documenting that people make systematic errors in the way that they
5、think: they are overconfident, they put too much weight on recent experience, etc. Their preferences may also create distortions. Behavioral finance uses this body of knowledge, rather than taking the arrogant approach that it should be ignored. Limits to arbitrage refers to predicting in what circu
6、mstances arbitrage forces will be effective, and when they wont be. Behavioral finance uses models in which some agents are not fully rational, either because of preferences or because of mistaken beliefs. An example of an assumption about preferences is that people are loss averse - a $2 gain might
7、 make people feel better by as much as a $1 loss makes them feel worse. Mistaken beliefs arise because people are bad Bayesians. Modern finance has as a building block the Efficient Markets Hypothesis (EMH). The EMH argues that competition between investors seeking abnormal profits drives prices to
8、their “correct” value. The EMH does not assume that all investors are rational, but it does assume that markets are rational. The EMH does not assume that markets can foresee the future, but it does assume that markets make unbiased forecasts of the future. In contrast, behavioral finance assumes th
9、at, in some circumstances, financial markets are informationally inefficient. 2 Not all misvaluations are caused by psychological biases, however. Some are just due to temporary supply and demand imbalances. For example, the tyranny of indexing can lead to demand shifts that are unrelated to the fut
10、ure cash flows of the firm. When Yahoo was added to the S&P 500 in December 1999, index fund managers had to buy the stock even though it had a limited public float. This extra demand drove up the price by over 50% in a week and over 100% in a month. Eighteen months later, the stock price was down b
11、y over 90% from where it was shortly after being added to the S&P. If it is easy to take positions (shorting overvalued stocks or buying undervalued stocks) and these misvaluations are certain to be corrected over a short period, then “arbitrageurs” will take positions and eliminate these mispricing
12、s before they become large. But if it is difficult to take these positions, due to short sales constraints, for instance, or if there is no guarantee that the mispricing will be corrected within a reasonable timeframe, then arbitrage will fail to correct the mispricing.1 Indeed, arbitrageurs may eve
13、n choose to avoid the markets where the mispricing is most severe, because the risks are too great. This is especially true when one is dealing with a large market, such as the Japanese stock market in the late 1980s or the U.S. market for technology stocks in the late 1990s. Arbitrageurs that attem
14、pted to short Japanese stocks in mid- 1987 and hedge by going long in U.S. stocks were right in the long run, but they lost huge amounts of money in October 1987 when the U.S. market crashed by more than the Japanese market (because of Japanese government intervention). If the arbitrageurs have limi
15、ted funds, they would be forced to cover their positions just when the relative misvaluations were greatest, resulting in additional buying pressure for Japanese stocks just when they were most overvalued! 2. Cognitive Biases Cognitive psychologists have documented many patterns regarding how people
16、 behave. Some of these patterns are as follows: Heuristics Heuristics, or rules of thumb, make decision-making easier. But they can sometimes lead to biases, especially when things change. These can lead to suboptimal investment decisions.When faced with N choices for how to invest retirement money,
17、 many people allocate using the 1/N rule. If there are three funds, one-third goes into each. If two are stock funds, two-thirds goes into equities. If one of the three is a stock fund, one-third goes into equities. Recently,Benartzi and Thaler (2001) have documented that many people follow the 1/N
18、rule. Overconfidence People are overconfident about their abilities. Entrepreneurs are especially likely to be overconfident. Overconfidence manifests itself in a number of ways. One example is too little diversification, because of a tendency to invest 3 too much in what one is familiar with. Thus,
19、 people invest in local companies, even though this is bad from a diversification viewpoint because their real estate (the house they own) is tied to the companys fortunes. Think of auto industry employees in Detroit, construction industry employees in Hong Kong or Tokyo, or computer hardware engine
20、ers in Silicon Valley. People invest way too much in the stock of the company that they work for. Men tend to be more overconfident than women. This manifests itself in many ways,including trading behavior. Barber and Odean (2001) recently analyzed the trading activities of people with discount brok
21、erage accounts. They found that the more people traded, the worse they did, on average. And men traded more, and did worse than, women investors. Mental Accounting People sometimes separate decisions that should, in principle, be combined. For example, many people have a household budget for food, a
22、nd a household budget for entertaining. At home, where the food budget is present, they will not eat lobster or shrimp because they are much more expensive than a fish casserole. But in a restaurant, they will order lobster and shrimp even though the cost is much higher than a simple fish dinner. If
23、 they instead ate lobster and shrimp at home, and the simple fish in a restaurant, they could save money. But because they are thinking separately about restaurant meals and food at home, they choose to limit their food at home. Framing Framing is the notion that how a concept is presented to indivi
24、duals matters. For example, restaurants may advertise “early-bird” specials or “after-theatre” discounts, but they never use peak-period “surcharges.” They get more business if people feel they are getting a discount at off-peak times rather than paying a surcharge at peak periods, even if the price
25、s are identical. Cognitive psychologists have documented that doctors make different recommendations if they see evidence that is presented as “survival probabilities” rather than “mortality rates,” even though survival probabilities plus mortality rates add up to 100%. Representativeness People und
26、erweight long-term averages. People tend to put too much weight on recent experience. This is sometimes known as the “law of small numbers.” As an example, when equity returns have been high for many years (such as 1982-2000 in the U.S. and western Europe), many people begin to believe that high equ
27、ity returns are “normal.” Conservatism When things change, people tend to be slow to pick up on the changes. In other words,they anchor on the ways things have normally been. The conservatism bias is at war with the representativeness bias. When things change, people might underreact because of the conservatism bias. But if there is a long enough pattern, then they will adjust to it and possibly overreact, underweighting the long-term average.
