Behavioural Finance

A concrete guide that links the theory of behavioral finance with applications in financial products
Behavioral finance is a rapidly expanding field, with major implications for the way in which the investment process is conducted. Behavioural Finance links the concepts of behavioral finance to measurable variables and smarter investment decision making. Comprehensive coverage relating theory to practical investment analysis provides a usable, practical guide for real-world situations.Behandelt ein brandheisses Thema, das zunehmend an Bedeutung gewinnt - die Behavioural Finance. Sie ist eine Teildisziplin der Finanzmarktforschung und beschäftigt sich mit der Psychologie von Investoren, d.h. damit, wie Marktteilnehmer Informationen auswählen und verarbeiten.

"Behavioural Finance" ist das erste Buch auf dem Markt, das die Theorie der Behavioural Finance mit der praktischen Investmentanalyse verknüpft.

Ein Leitfaden und Wegweiser für die praktische Marktanalyse aus Sicht der Behavioural Finance.

Es verbindet die Konzepte der Behavioural Finance mit messbaren Variablen und klügeren Investmententscheidungen.

Autor James Montier ist ein erfahrener Experte auf diesem Gebiet. Preface.

Introduction.

1. Psychological Foundations.

Introduction.

Biases of Judgement or Perception is Reality.

Errors of Preference or There is No Such Thing as Context-free Decision Making.

Conclusions.

2. Imperfect Markets and Limited Arbitrage.

Introduction.

Ketchup Economics.

Efficiency and LOOP.

Stock Market.

Other Markets.

Imperfect Substitutes.

Limited Arbitrage.

Positive Feedback Trading.

Risk Management and Limited Arbitrage.

On the Survival of Noise Traders.

Informational Imperfections.

Conclusions.

3. Style Investing.

Introduction.

The Data.

The History.

Potential Gains to Style Rotation.

Life Cycle of an Investment Style.

Value vs. Growth: Risk or Behavioural?

Style Rotation.

Quantitative Screens.

Timing the Switch.

Conclusions.

4. Stock Valuation.

Introduction.

Keynes' Beauty Competition.

The (Ir)relevance of Fundamentals.

Valuation and Behavioural Biases.

Cost of Capital.

Factors from Limited Arbitrage.

An Analyst's Guide.

5. Portfolio Construction and Risk Management.

Introduction.

Covariances.

Correlations.

Distribution of Returns.

Fat Tails or Outliers?

6. Asset Allocation.

Introduction.

Markets and Fundamentals.

Dividend Yield, Spreads and Ratios.

Earnings Yield, Spreads and Ratios.

Payout Ratio.

The Equity Risk Premium.

Should Corporate Financiers be Running TAA?

Market Liquidity.

Crashes as Critical Points.

7. Corporate Finance.

Introduction.

Irrational Managers/Rational Markets.

Rational Managers/Irrational Markets.

Conclusions.

8. The Indicators.

Introduction.

Liquidity Measures.

Sentiment Measures.

Asset Allocation Measures.

Earnings Measures.

Technical Measures.

Others.

Final Thoughts.

Bibliography.

Index.

"...The finding is surprising, as the City is notoriously full of arrogant young men betting on financial markets…Mr Montier has unearthed bizarre facts which suggest stock markets are frequently driven by entirely irrational factors..." (The Daily Telegraph 25 November 2002)

"...In a new book, James Montier…outlines practical methods for exploiting the anomalies thrown up by behavioural finance..." (Financial Times, 25 November 2002)

"…a good introduction to this subject…." (Professional Investor, March 2003)

James Montier (London, UK) is the Director of Global Strategy at Dresdner Kleinwort Watterstein. Prior to this, he was director of investment strategy for Old Mutual Securities. Behavioural finance starts with the simple belief that in the 'real world' investors are not rational. Based on many years experience, James Montier provides practical yet rigorous coverage of this emerging science, providing insights into the irrational nature of investment decisions. Behavioural Finance: Insights into Irrational Minds and Markets is essential reading for fund managers, strategists, asset allocators, portfolio constructors, corporate financiers and analysts. It is also suitable for MBAs and students studying finance and investment management. "In his splendid handbook for institutional investors, James Montier combines the insights he has gained as a practitioner, with the insights he has gleaned reading the academic literature in behavioural finance. Most importantly, Montier identifies key lessons to help institutional investors mitigate their susceptibility to psychologically-induced errors and biases". Professor Hersh M. Shefrin, Leavey School of Business & Administration, Santa Clara, University

"Behavioural Finance is unique in combining in a practical way the insights of a very experienced investment practitioner with a very readable review of what the research evidence tells us. This book is essential reading for all serious students of market behaviour and any investor wanting to know how behavioural finance can be used to enhance investment returns". Professor Richard Taffler, Head of Finance and Accounting, Cranfield School of Management, UK

"Behavioural finance abandons the assumptions of investor rationality and suggests that people do make mistakes in a consistent and predictable manner. Investors need to understand the herd if they want to make sense and profit from today's markets. James Montier's accessible book soundly guides the reader from behavioural finance theory to application. Don't grapple with the academic literature - just read Montier". Christian E Elsmark, Investment Director, JPMorgan Fleming Asset Management