{"product_id":"behavioural-finance-isbn-9780470028049","title":"Behavioural Finance","description":"\u003ci\u003e\u003cb\u003eBehavioural Finance\u003c\/b\u003e\u003c\/i\u003e builds on the knowledge and skills that students have already gained on an introductory finance or corporate finance course. The primary focus of the book is on how behavioural approaches extend what students already know. At each stage the theory is developed by application to the FTSE 100 companies and their valuation and strategy. This approach helps the reader understand how behavioural models can be applied to everyday problems faced by practitioners at both a market and individual company level. The book develops simple formal expositions of existing attempts to model the impact of behavioural bias on investor\/managers' decisions. Where possible this is done grounding the discussion in practical, numerical, examples from the financial press and business life. \u003cp\u003ePreface xv\u003c\/p\u003e \u003cp\u003eAcknowledgements xvii\u003c\/p\u003e \u003cp\u003e\u003cb\u003e1 Introduction 1\u003c\/b\u003e\u003c\/p\u003e \u003cp\u003e1.1 Illustration and Structure 2\u003c\/p\u003e \u003cp\u003e1.2 Finance Theory as an Engine not a Camera 3\u003c\/p\u003e \u003cp\u003e1.2.1 Rational Fools or Folly of Wisdom? 5\u003c\/p\u003e \u003cp\u003e1.3 Rebuilding on New Foundations 7\u003c\/p\u003e \u003cp\u003e1.3.1 Reasoned Emotion: The Case of Phineas Gage 8\u003c\/p\u003e \u003cp\u003e1.3.2 What Can Psychologists Bring to Finance? 9\u003c\/p\u003e \u003cp\u003e1.4 Challenging the Classical Assumptions of Finance 9\u003c\/p\u003e \u003cp\u003e1.5 Modelling Behavioural Aspects of Finance 11\u003c\/p\u003e \u003cp\u003e1.6 The Structure of the Book 12\u003c\/p\u003e \u003cp\u003eAppendix: A Financial Tsunami 14\u003c\/p\u003e \u003cp\u003eNotes 14\u003c\/p\u003e \u003cp\u003eReferences 14\u003c\/p\u003e \u003cp\u003e\u003cb\u003ePart I Foundations 17\u003c\/b\u003e\u003c\/p\u003e \u003cp\u003e\u003cb\u003e2 Financial Decision Making 19\u003c\/b\u003e\u003c\/p\u003e \u003cp\u003e2.1 Illustration and Structure 19\u003c\/p\u003e \u003cp\u003e2.2 The Expected Utility Rule 20\u003c\/p\u003e \u003cp\u003e2.2.1 An Illustration of Expected Utility 21\u003c\/p\u003e \u003cp\u003e2.2.2 Attitudes to Risk 22\u003c\/p\u003e \u003cp\u003e2.2.3 Diversification as Risk Reduction Strategy 23\u003c\/p\u003e \u003cp\u003e2.2.4 How Best To Bear Risk 24\u003c\/p\u003e \u003cp\u003e2.3 Expected Utility Theory: Simple But Untrue? 26\u003c\/p\u003e \u003cp\u003e2.3.1 Paradoxes and Problems in Early Understanding of Expected Utility Theory 27\u003c\/p\u003e \u003cp\u003e2.3.2 Gambling Insurance and Aspiration 29\u003c\/p\u003e \u003cp\u003e2.4 Frames for Actions, Contingencies and Outcomes 31\u003c\/p\u003e \u003cp\u003e2.4.1 The Decision Process 31\u003c\/p\u003e \u003cp\u003e2.4.2 Inferring Big Ideas from Small Samples 32\u003c\/p\u003e \u003cp\u003e2.4.3 Stars with Feet of Clay 33\u003c\/p\u003e \u003cp\u003e2.4.4 Is There More to Life Than (Maximizing) Utility? 34\u003c\/p\u003e \u003cp\u003e2.4.5 Happiness, Well-Being and the Emotional Basis of Utility 34\u003c\/p\u003e \u003cp\u003e2.5 Conclusion and Summary 35\u003c\/p\u003e \u003cp\u003eQuestions 35\u003c\/p\u003e \u003cp\u003eNotes 36\u003c\/p\u003e \u003cp\u003eReferences 36\u003c\/p\u003e \u003cp\u003e\u003cb\u003e3 Discounting 39\u003c\/b\u003e\u003c\/p\u003e \u003cp\u003e3.1 Illustration and Structure 40\u003c\/p\u003e \u003cp\u003e3.2 The Discounted Utility Model 40\u003c\/p\u003e \u003cp\u003e3.2.1 Some Problems with the Discounted Utility Model 41\u003c\/p\u003e \u003cp\u003e3.2.2 Evaluating Reallocations of Consumption by Equivalent Gains or Compensating Losses of Present Consumption 42\u003c\/p\u003e \u003cp\u003e3.2.3 Delays and Speed-Ups of Utility 44\u003c\/p\u003e \u003cp\u003e3.3 How and Why Discount Rates Vary 44\u003c\/p\u003e \u003cp\u003e3.3.1 Discounting Single Outcomes Compared to Sequences of Outcomes 46\u003c\/p\u003e \u003cp\u003e3.4 Investment Behaviour When Discount Rates are Declining: Investing in a ‘Golden Egg’ 47\u003c\/p\u003e \u003cp\u003e3.5 Hyperbolic Discount Factors 49\u003c\/p\u003e \u003cp\u003e3.6 Valuation by Using the Matching Law 51\u003c\/p\u003e \u003cp\u003e3.6.1 On Pigeons and Men: Comparing Hyperbolic and Exponential Discounting 53\u003c\/p\u003e \u003cp\u003e3.7 How Investment Decisions are Made When Discount Factors Decline Over Time 54\u003c\/p\u003e \u003cp\u003e3.7.1 A Simple Example of a Sub-Game Perfect Equilibrium 55\u003c\/p\u003e \u003cp\u003e3.7.2 The Properties of a Sub-Game Perfect Investment Strategy Equilibrium 57\u003c\/p\u003e \u003cp\u003e3.7.3 How Do Declining Discount Rates Affect Investment Behaviour? 58\u003c\/p\u003e \u003cp\u003e3.8 Conclusion and Summary 59\u003c\/p\u003e \u003cp\u003eAppendix: Timely Choice: Euler Equations – Dynamics and Inter-Temporal Choice 60\u003c\/p\u003e \u003cp\u003eQuestions 61\u003c\/p\u003e \u003cp\u003eNotes 62\u003c\/p\u003e \u003cp\u003eReferences 62\u003c\/p\u003e \u003cp\u003e\u003cb\u003e4 Learning 65\u003c\/b\u003e\u003c\/p\u003e \u003cp\u003e4.1 Illustration and Structure 65\u003c\/p\u003e \u003cp\u003e4.2 Rational Learning 66\u003c\/p\u003e \u003cp\u003e4.2.1 Bayes’ Rule 66\u003c\/p\u003e \u003cp\u003e4.2.2 Elements of Bayesian Revision 68\u003c\/p\u003e \u003cp\u003e4.2.3 The Value of Stock Recommendations 70\u003c\/p\u003e \u003cp\u003e4.3 Do We Learn the Bayesian Way? 72\u003c\/p\u003e \u003cp\u003e4.3.1 Representativeness 74\u003c\/p\u003e \u003cp\u003e4.3.2 Representation Bias in the Market: Analysts’ Overreaction to Earnings 74\u003c\/p\u003e \u003cp\u003e4.3.3 A Once and For All Lesson? 75\u003c\/p\u003e \u003cp\u003e4.4 Over Inference and the Law of Small Numbers 76\u003c\/p\u003e \u003cp\u003e4.5 Disagreement, Tastes and the Capital Asset Pricing Model 77\u003c\/p\u003e \u003cp\u003e4.6 Conclusion and Summary 79\u003c\/p\u003e \u003cp\u003eAppendix: Case Study – Baseball the Bayesian Way 80\u003c\/p\u003e \u003cp\u003eQuestions 87\u003c\/p\u003e \u003cp\u003eNotes 88\u003c\/p\u003e \u003cp\u003eReferences 88\u003c\/p\u003e \u003cp\u003e\u003cb\u003e5 Bubbles 89\u003c\/b\u003e\u003c\/p\u003e \u003cp\u003e5.1 Illustration and Structure 90\u003c\/p\u003e \u003cp\u003e5.2 Tulipmania and the Didactic Value of Bubbles 91\u003c\/p\u003e \u003cp\u003e5.3 The Regulatory Origins of the Most Recent Bubble 92\u003c\/p\u003e \u003cp\u003e5.3.1 Long-Term Capital Management 92\u003c\/p\u003e \u003cp\u003e5.3.2 The Federal Reserve and Market Restraint 95\u003c\/p\u003e \u003cp\u003e5.4 Bubbles: Past, Present and Future 101\u003c\/p\u003e \u003cp\u003e5.4.1 Financial Bubbles and Infrastructure Technology 102\u003c\/p\u003e \u003cp\u003e5.4.2 Are Bubbles Just Part of the Market Process? 103\u003c\/p\u003e \u003cp\u003e5.5 The 1929 Stock-Market Crash 104\u003c\/p\u003e \u003cp\u003e5.5.1 Early Signs 104\u003c\/p\u003e \u003cp\u003e5.5.2 The Boom is On 105\u003c\/p\u003e \u003cp\u003e5.5.3 Innovation and Speculation 106\u003c\/p\u003e \u003cp\u003e5.5.4 Investment Trusts in the Boom’s Growth 106\u003c\/p\u003e \u003cp\u003e5.5.5 The Final Implosion 107\u003c\/p\u003e \u003cp\u003e5.6 Should Government Burst the Bubble? 108\u003c\/p\u003e \u003cp\u003e5.7 Conclusion and Summary 109\u003c\/p\u003e \u003cp\u003eAppendix: Tulips as Assets and Art 110\u003c\/p\u003e \u003cp\u003eQuestions 114\u003c\/p\u003e \u003cp\u003eNotes 114\u003c\/p\u003e \u003cp\u003eReferences 114\u003c\/p\u003e \u003cp\u003e\u003cb\u003ePart II Asset Pricing 117\u003c\/b\u003e\u003c\/p\u003e \u003cp\u003e\u003cb\u003e6 Noise Traders 119\u003c\/b\u003e\u003c\/p\u003e \u003cp\u003e6.1 Illustration and Structure 120\u003c\/p\u003e \u003cp\u003e6.2 The De Long, Shleifer, Summers and Waldmann Model 121\u003c\/p\u003e \u003cp\u003e6.2.1 The Basic Set Up 122\u003c\/p\u003e \u003cp\u003e6.2.2 Modelling Mispricing 122\u003c\/p\u003e \u003cp\u003e6.2.3 What Investors Want 123\u003c\/p\u003e \u003cp\u003e6.2.4 Choosing Optimal Asset Allocations Across the Safe and Risky Asset 124\u003c\/p\u003e \u003cp\u003e6.2.5 The Pricing Equation 125\u003c\/p\u003e \u003cp\u003e6.2.6 Will Noise Traders Die Out? 128\u003c\/p\u003e \u003cp\u003e6.2.7 Decomposing Noise Traders’ Profits 130\u003c\/p\u003e \u003cp\u003e6.3 Can Investors Get Emotional? 133\u003c\/p\u003e \u003cp\u003e6.3.1 Feeling the Risk 134\u003c\/p\u003e \u003cp\u003e6.3.2 The Affect Heuristic 135\u003c\/p\u003e \u003cp\u003e6.3.3 Panic and Feedback Trading During the 1987 Stock-Market Crash 136\u003c\/p\u003e \u003cp\u003e6.3.4 The Diminishing Roar of Noise 137\u003c\/p\u003e \u003cp\u003e6.4 Conclusion and Summary 138\u003c\/p\u003e \u003cp\u003eQuestions 138\u003c\/p\u003e \u003cp\u003eNotes 139\u003c\/p\u003e \u003cp\u003eReferences 139\u003c\/p\u003e \u003cp\u003e\u003cb\u003e7 Overconfidence and Optimism 141\u003c\/b\u003e\u003c\/p\u003e \u003cp\u003e7.1 Illustration and Structure 142\u003c\/p\u003e \u003cp\u003e7.2 A Model of Trading Amongst Optimistic Investors 142\u003c\/p\u003e \u003cp\u003e7.2.1 The Model 143\u003c\/p\u003e \u003cp\u003e7.2.2 Price Setting 143\u003c\/p\u003e \u003cp\u003e7.2.3 Conditions for Overconfident Pricing of the Risky Asset 144\u003c\/p\u003e \u003cp\u003e7.2.4 Pricing in Odean’s Model 147\u003c\/p\u003e \u003cp\u003e7.2.5 The Implications of Odean’s Model for Financial Markets 150\u003c\/p\u003e \u003cp\u003e7.3 Do Investors Trade Too Much? 150\u003c\/p\u003e \u003cp\u003e7.3.1 Optimism in Corporate Finance 151\u003c\/p\u003e \u003cp\u003e7.3.2 Facing Failure 151\u003c\/p\u003e \u003cp\u003e7.3.3 Who Dares Loses? 153\u003c\/p\u003e \u003cp\u003e7.3.4 The Hubris Theory of Takeovers 153\u003c\/p\u003e \u003cp\u003e7.4 Conclusion and Summary 154\u003c\/p\u003e \u003cp\u003eAppendix A: Hubris at Work: The AOL–Time Warner Merger 155\u003c\/p\u003e \u003cp\u003eAppendix B: Derivation of Results in Odean’s Model 161\u003c\/p\u003e \u003cp\u003eQuestions 163\u003c\/p\u003e \u003cp\u003eNotes 163\u003c\/p\u003e \u003cp\u003eReferences 163\u003c\/p\u003e \u003cp\u003e\u003cb\u003e8 Asset Pricing under Prospect Theory 165\u003c\/b\u003e\u003c\/p\u003e \u003cp\u003e8.1 Illustration and Structure 165\u003c\/p\u003e \u003cp\u003e8.2 The Basics of Prospect Theory 166\u003c\/p\u003e \u003cp\u003e8.2.1 Prospect Theory’s Application to Finance 167\u003c\/p\u003e \u003cp\u003e8.2.2 Benchmarks, Gains and Losses and the Dynamics of Utility under Prospect Theory 168\u003c\/p\u003e \u003cp\u003e8.2.3 Integration or Segregation of Losses and Gains in the Presence of Loss Aversion 169\u003c\/p\u003e \u003cp\u003e8.2.4 The Evolution of Investor Benchmarks 170\u003c\/p\u003e \u003cp\u003e8.2.5 Price Formation in a Market Populated By Investors With Prospect Theory Utility Functions 171\u003c\/p\u003e \u003cp\u003e8.2.6 Pricing in the Standard Inter-Temporal Consumption-Based Asset-Pricing Model or Economy I 171\u003c\/p\u003e \u003cp\u003e8.3 Does Prospect Theory Work? 172\u003c\/p\u003e \u003cp\u003e8.3.1 Can Prospect Theory Explain the Internet Bubble? 172\u003c\/p\u003e \u003cp\u003e8.3.2 Can Prospect Theory Explain IPO Underpricing? 174\u003c\/p\u003e \u003cp\u003e8.3.3 Prospect Theory Here, There and Everywhere 176\u003c\/p\u003e \u003cp\u003e8.4 The Cumulative Probability Version of Prospect Theory 176\u003c\/p\u003e \u003cp\u003e8.5 Does Cumulative Prospect Theory Work? 177\u003c\/p\u003e \u003cp\u003e8.5.1 Cumulative Prospect Theory and Asset Pricing 179\u003c\/p\u003e \u003cp\u003e8.6 Conclusion and Summary 181\u003c\/p\u003e \u003cp\u003eAppendix: CARA Utility 181\u003c\/p\u003e \u003cp\u003eQuestions 182\u003c\/p\u003e \u003cp\u003eNote 182\u003c\/p\u003e \u003cp\u003eReferences 183\u003c\/p\u003e \u003cp\u003e\u003cb\u003e9 Overreaction and\/or Underreaction 185\u003c\/b\u003e\u003c\/p\u003e \u003cp\u003e9.1 Illustration and Structure 185\u003c\/p\u003e \u003cp\u003e9.2 The DHS Model 186\u003c\/p\u003e \u003cp\u003e9.2.1 Reversals of Fortune 188\u003c\/p\u003e \u003cp\u003e9.2.2 Pricing When Confidence Levels Depend on the Relation Between the Public and Private Signals 189\u003c\/p\u003e \u003cp\u003e9.2.3 Investor Extrapolation and Reversals of Fortune 192\u003c\/p\u003e \u003cp\u003e9.2.4 Many Theories in Search of a Decisive Verification 192\u003c\/p\u003e \u003cp\u003e9.2.5 Momentum and Underreaction: Two Stock-Market Anomalies or One? 194\u003c\/p\u003e \u003cp\u003e9.3 No News Is . . .? 194\u003c\/p\u003e \u003cp\u003e9.3.1 The Jackson and Johnson (JJ) Model’s Message 195\u003c\/p\u003e \u003cp\u003e9.3.2 How the JJ Model Works 196\u003c\/p\u003e \u003cp\u003e9.3.3 Stock-Market Responses to News and No News 199\u003c\/p\u003e \u003cp\u003e9.4 Conclusion and Summary 199\u003c\/p\u003e \u003cp\u003eQuestions 199\u003c\/p\u003e \u003cp\u003eNote 199\u003c\/p\u003e \u003cp\u003eReferences 200\u003c\/p\u003e \u003cp\u003e\u003cb\u003e10 Momentum 201\u003c\/b\u003e\u003c\/p\u003e \u003cp\u003e10.1 Illustration and Structure 201\u003c\/p\u003e \u003cp\u003e10.2 Grinblatt and Han’s (2005) Model 203\u003c\/p\u003e \u003cp\u003e10.2.1 Modelling Asset Demand in the GH Model 204\u003c\/p\u003e \u003cp\u003e10.2.2 Investor Returns and the Evolution of the Reference Point 207\u003c\/p\u003e \u003cp\u003e10.3 What Drives Stock-Market Momentum? 208\u003c\/p\u003e \u003cp\u003e10.3.1 Evidence of PEAD 209\u003c\/p\u003e \u003cp\u003e10.4 What Causes PEAD? 212\u003c\/p\u003e \u003cp\u003e10.4.1 Is PEAD Due to Changes in Risk? 212\u003c\/p\u003e \u003cp\u003e10.4.2 Are Prices Following Themselves or Following Earnings? 213\u003c\/p\u003e \u003cp\u003e10.4.3 Is PEAD in the Market or in the Eye of the Researcher? 215\u003c\/p\u003e \u003cp\u003e10.4.4 Show Me the Money 216\u003c\/p\u003e \u003cp\u003e10.5 Conclusion and Summary 217\u003c\/p\u003e \u003cp\u003eQuestions 217\u003c\/p\u003e \u003cp\u003eNote 218\u003c\/p\u003e \u003cp\u003eReferences 218\u003c\/p\u003e \u003cp\u003e\u003cb\u003e11 Herding 221\u003c\/b\u003e\u003c\/p\u003e \u003cp\u003e11.1 Illustration and Structure 221\u003c\/p\u003e \u003cp\u003e11.2 The FSS Model 222\u003c\/p\u003e \u003cp\u003e11.2.1 The Basic Set Up 222\u003c\/p\u003e \u003cp\u003e11.2.2 The Price-Setting Mechanism Used by Market-Makers 223\u003c\/p\u003e \u003cp\u003e11.2.3 Informed Speculators’ Demands 224\u003c\/p\u003e \u003cp\u003e11.3 Conformity as a Force for Social Good and Evil 228\u003c\/p\u003e \u003cp\u003e11.3.1 Evidence on Herding and its Effect 229\u003c\/p\u003e \u003cp\u003e11.3.2 Herding in Investment Advice 230\u003c\/p\u003e \u003cp\u003e11.3.3 Words which Cannot be Spoken 230\u003c\/p\u003e \u003cp\u003e11.3.4 Private Truths and Public Lies 231\u003c\/p\u003e \u003cp\u003e11.3.5 The Herd in History 233\u003c\/p\u003e \u003cp\u003e11.4 Conclusion and Summary 233\u003c\/p\u003e \u003cp\u003eAppendix: \u003ci\u003eThe United States vs. Microsoft\u003c\/i\u003e 234\u003c\/p\u003e \u003cp\u003eQuestions 236\u003c\/p\u003e \u003cp\u003eNote 237\u003c\/p\u003e \u003cp\u003eReferences 237\u003c\/p\u003e \u003cp\u003e\u003cb\u003e12 Insider Trading 239\u003c\/b\u003e\u003c\/p\u003e \u003cp\u003e12.1 Illustration and Structure 240\u003c\/p\u003e \u003cp\u003e12.2 Insider Trading Here for Better or Worse 241\u003c\/p\u003e \u003cp\u003e12.2.1 The Distributional Impact of Insider Trading 242\u003c\/p\u003e \u003cp\u003e12.2.2 When does Trading become Insider Trading? 243\u003c\/p\u003e \u003cp\u003e12.2.3 Insiders on Trial: Proof of Guilt or Innocence? 244\u003c\/p\u003e \u003cp\u003e12.3 The Hirshleifer, Subrahmanyam and Titman Model 245\u003c\/p\u003e \u003cp\u003e12.3.1 Asset Demands and the Determination of Investor’s Terminal Wealth in the HST Model 246\u003c\/p\u003e \u003cp\u003e12.3.2 Pricing in Equilibrium 250\u003c\/p\u003e \u003cp\u003e12.3.3 Trading Behaviour in Equilibrium 251\u003c\/p\u003e \u003cp\u003e12.4 Insider Trading, Stock Options and the Construction of Earnings 255\u003c\/p\u003e \u003cp\u003e12.4.1 Psychological Factors Determining the Exercise of Stock Options 256\u003c\/p\u003e \u003cp\u003e12.5 Insider Trading and its Consequence for Outsiders 257\u003c\/p\u003e \u003cp\u003e12.6 Conclusion and Summary 258\u003c\/p\u003e \u003cp\u003eAppendix A: Why Don’t Later Informed Traders Trade in Period 1 in the HST Model? 258\u003c\/p\u003e \u003cp\u003eAppendix B: Deriving Investor Demands as Linear Functions of the Random Variables Underpinning the Model 262\u003c\/p\u003e \u003cp\u003eQuestions 265\u003c\/p\u003e \u003cp\u003eNotes 265\u003c\/p\u003e \u003cp\u003eReferences 266\u003c\/p\u003e \u003cp\u003e\u003cb\u003e13 Equity Premium Puzzle 269\u003c\/b\u003e\u003c\/p\u003e \u003cp\u003e13.1 Illustration and Structure 269\u003c\/p\u003e \u003cp\u003e13.2 The Puzzle 270\u003c\/p\u003e \u003cp\u003e13.2.1 The Mehra and Prescott Statement of the Equity Premium Puzzle 271\u003c\/p\u003e \u003cp\u003e13.2.2 Explaining the Risk Premium by Myopic Loss Aversion 272\u003c\/p\u003e \u003cp\u003e13.2.3 Can Loss Aversion Explain the Puzzle? 274\u003c\/p\u003e \u003cp\u003e13.3 Loss Aversion in a Reference-Dependent Utility Model 276\u003c\/p\u003e \u003cp\u003e13.3.1 A Reference-Dependent Model of Investor Choice 277\u003c\/p\u003e \u003cp\u003e13.3.2 Loss Aversion in a Reference-Dependent Model of Choice 277\u003c\/p\u003e \u003cp\u003e13.3.3 Diminishing Sensitivity to Losses and Gains 278\u003c\/p\u003e \u003cp\u003e13.3.4 Constant Risk Aversion and the Benartzi and Thaler (1995) Model 279\u003c\/p\u003e \u003cp\u003e13.3.5 Is Loss Aversion Irrational? 280\u003c\/p\u003e \u003cp\u003e13.4 Conclusion and Summary 280\u003c\/p\u003e \u003cp\u003eQuestions 281\u003c\/p\u003e \u003cp\u003eReferences 281\u003c\/p\u003e \u003cp\u003e\u003cb\u003ePart III Corporate Finance 283\u003c\/b\u003e\u003c\/p\u003e \u003cp\u003e\u003cb\u003e14 Incorporation 285\u003c\/b\u003e\u003c\/p\u003e \u003cp\u003e14.1 Illustration and Structure 285\u003c\/p\u003e \u003cp\u003e14.2 Companies: Where did They Come from and Where will They Go? 286\u003c\/p\u003e \u003cp\u003e14.2.1 Limited Liability: its Value and its Role in the Emergence of the Corporate Form 288\u003c\/p\u003e \u003cp\u003e14.2.2 The Economic Rationale for Granting Limited Liability 288\u003c\/p\u003e \u003cp\u003e14.3 Agency, Monitoring and Incorporation 289\u003c\/p\u003e \u003cp\u003e14.3.1 Are Managers Agents or Team Members? 291\u003c\/p\u003e \u003cp\u003e14.3.2 Psychological Barriers to Arm’s Length Contracting 294\u003c\/p\u003e \u003cp\u003e14.3.3 Group Psychology on the Board, Building Consensus and its Dissimulation 294\u003c\/p\u003e \u003cp\u003e14.4 Lions Led by Donkeys. Some Common Failings in Managerial Making 296\u003c\/p\u003e \u003cp\u003e14.4.1 Clearing Out the ‘Inside View’ 297\u003c\/p\u003e \u003cp\u003e14.4.2 Come On Down: the Satisfaction of Recognition 298\u003c\/p\u003e \u003cp\u003e14.4.3 Facing Glory and Defeat: Managers’ Resistance to Recognizing Failure 298\u003c\/p\u003e \u003cp\u003e14.4.4 Governance in the Long and Short Run 299\u003c\/p\u003e \u003cp\u003e14.5 Conclusion and Summary 300\u003c\/p\u003e \u003cp\u003eAppendix: Emperor Eisner – A Case Study in the Power of Personal Control in a Corporation 300\u003c\/p\u003e \u003cp\u003eQuestions 313\u003c\/p\u003e \u003cp\u003eNotes 313\u003c\/p\u003e \u003cp\u003eReferences 314\u003c\/p\u003e \u003cp\u003e\u003cb\u003e15 The Market for Information, Noise and Deception 317\u003c\/b\u003e\u003c\/p\u003e \u003cp\u003e15.1 Illustration and Structure 318\u003c\/p\u003e \u003cp\u003e15.2 The Boundaries of the Market for Corporate Information 318\u003c\/p\u003e \u003cp\u003e15.2.1 The Conduct of the Market for Corporate Information 319\u003c\/p\u003e \u003cp\u003e15.3 What Do Analysts Do? 321\u003c\/p\u003e \u003cp\u003e15.3.1 The Ivkovic and Jegadeesh (IJ) Model 322\u003c\/p\u003e \u003cp\u003e15.4 Valuing Investment Advice 325\u003c\/p\u003e \u003cp\u003e15.4.1 The Market for Corporate Information 326\u003c\/p\u003e \u003cp\u003e15.4.2 What Type of Valuation Models do Analysts Use? 328\u003c\/p\u003e \u003cp\u003e15.4.3 The Fragility of Valuation Models 330\u003c\/p\u003e \u003cp\u003e15.4.4 A Dynamic Model of the Market for Financial Information 332\u003c\/p\u003e \u003cp\u003e15.4.5 From Inside and Out: Isolation Bias and Risk Taking 333\u003c\/p\u003e \u003cp\u003e15.5 Conclusion and Summary 333\u003c\/p\u003e \u003cp\u003eQuestions 334\u003c\/p\u003e \u003cp\u003eNotes 334\u003c\/p\u003e \u003cp\u003eReferences 334\u003c\/p\u003e \u003cp\u003e\u003cb\u003e16 Dividends 337\u003c\/b\u003e\u003c\/p\u003e \u003cp\u003e16.1 Illustration and Structure 337\u003c\/p\u003e \u003cp\u003e16.2 The Irrelevance of Dividends to Value 338\u003c\/p\u003e \u003cp\u003e16.2.1 The Puzzle of Dividend Policy 339\u003c\/p\u003e \u003cp\u003e16.3 A Prospect Theory Explanation of Dividend Payments 340\u003c\/p\u003e \u003cp\u003e16.3.1 Coding of Prospects: Combination, Segregation 341\u003c\/p\u003e \u003cp\u003e16.3.2 Shop Until You Should Stop 341\u003c\/p\u003e \u003cp\u003e16.3.3 Calculating the Dividend Yield Premium\/Discount 342\u003c\/p\u003e \u003cp\u003e16.4 Who Pays Dividends and Why? 346\u003c\/p\u003e \u003cp\u003e16.4.1 Are Dividends Signals of Future Earnings Prospects? 346\u003c\/p\u003e \u003cp\u003e16.4.2 Dividend Omissions, Initiations and Drift 347\u003c\/p\u003e \u003cp\u003e16.4.3 What Reasons do Managers Give for Paying Dividends? 348\u003c\/p\u003e \u003cp\u003e16.4.4 Does Pay-out Policy Matter? 349\u003c\/p\u003e \u003cp\u003e16.5 Conclusion and Summary 350\u003c\/p\u003e \u003cp\u003eQuestions 350\u003c\/p\u003e \u003cp\u003eNote 351\u003c\/p\u003e \u003cp\u003eReferences 351\u003c\/p\u003e \u003cp\u003e\u003cb\u003e17 Entrepreneurship 353\u003c\/b\u003e\u003c\/p\u003e \u003cp\u003e17.1 Illustration and Structure 354\u003c\/p\u003e \u003cp\u003e17.1.1 The Problem of Self-Control 354\u003c\/p\u003e \u003cp\u003e17.2 The BT Model 355\u003c\/p\u003e \u003cp\u003e17.2.1 The Demand for Self-Confidence in the BT Model 355\u003c\/p\u003e \u003cp\u003e17.2.2 Always Wrong but Never in Doubt 359\u003c\/p\u003e \u003cp\u003e17.2.3 The Supply of Self-Confidence in the BT Model 359\u003c\/p\u003e \u003cp\u003e17.2.4 Numerical Illustration of the BT Model 361\u003c\/p\u003e \u003cp\u003e17.3 Is Deluding Yourself Worth it? 362\u003c\/p\u003e \u003cp\u003e17.3.1 Optimism, Self-Control and Society 363\u003c\/p\u003e \u003cp\u003e17.3.2 The Social Benefits of the Maverick Entrepreneur 363\u003c\/p\u003e \u003cp\u003e17.4 Conclusion and Summary 364\u003c\/p\u003e \u003cp\u003eAppendix: Entrepreneurs and the BT Model – Some Case Studies 364\u003c\/p\u003e \u003cp\u003eQuestions 370\u003c\/p\u003e \u003cp\u003eNotes 370\u003c\/p\u003e \u003cp\u003eReferences 371\u003c\/p\u003e \u003cp\u003e\u003cb\u003ePart IV The Professions 373\u003c\/b\u003e\u003c\/p\u003e \u003cp\u003e\u003cb\u003e18 Analysts’ Conflicts of Interest 375\u003c\/b\u003e\u003c\/p\u003e \u003cp\u003e18.1 Illustration and Structure 376\u003c\/p\u003e \u003cp\u003e18.2 Evidence of Conflicts of Interest from Empirical Studies 377\u003c\/p\u003e \u003cp\u003e18.2.1 No Conflict, No Interest 378\u003c\/p\u003e \u003cp\u003e18.2.2 Is Disclosure of a Conflict of Interest Sufficient Protection for Investors? 379\u003c\/p\u003e \u003cp\u003e18.2.3 Conflicts in the Laboratory 379\u003c\/p\u003e \u003cp\u003e18.3 Regulating Conflicts of Interest 380\u003c\/p\u003e \u003cp\u003e18.3.1 UK Policy on Conflicts of Interest 380\u003c\/p\u003e \u003cp\u003e18.3.2 EU Policy on Conflicts of Interest 382\u003c\/p\u003e \u003cp\u003e18.3.3 US Policy on Conflicts of Interest 383\u003c\/p\u003e \u003cp\u003e18.3.4 The Common Law of Conflicts of Interest 383\u003c\/p\u003e \u003cp\u003e18.3.5 The Dura Pharmaceuticals Case 384\u003c\/p\u003e \u003cp\u003e18.3.6 Market Efficiency, Conflicts of Interest and the Courts 385\u003c\/p\u003e \u003cp\u003e18.4 Conclusion and Summary 385\u003c\/p\u003e \u003cp\u003eQuestions 386\u003c\/p\u003e \u003cp\u003eNotes 386\u003c\/p\u003e \u003cp\u003eReferences 386\u003c\/p\u003e \u003cp\u003e\u003cb\u003e19 Accounting Reform 389\u003c\/b\u003e\u003c\/p\u003e \u003cp\u003e19.1 Illustration and Structure 389\u003c\/p\u003e \u003cp\u003e19.2 The Onward March of ‘Fair-Value’ Accounting 390\u003c\/p\u003e \u003cp\u003e19.2.1 Historic Cost versus Fair Value 390\u003c\/p\u003e \u003cp\u003e19.2.2 A Return to Fundamental Valuation 392\u003c\/p\u003e \u003cp\u003e19.3 An Accounting-Based Valuation Model 392\u003c\/p\u003e \u003cp\u003e19.3.1 Are All Reported Earnings Additions to Shareholder Value? 394\u003c\/p\u003e \u003cp\u003e19.3.2 The Dynamics of Abnormal Earnings Valuation 395\u003c\/p\u003e \u003cp\u003e19.3.3 Some Examples of the Ohlson Model in Action 396\u003c\/p\u003e \u003cp\u003e19.3.4 Implications for Price 398\u003c\/p\u003e \u003cp\u003e19.3.5 Implications for Returns 400\u003c\/p\u003e \u003cp\u003e19.3.6 Does the Ohlson Model Work? 400\u003c\/p\u003e \u003cp\u003e19.3.7 Earnings Persistence in the Ohlson Model 403\u003c\/p\u003e \u003cp\u003e19.3.8 Other Information in the Ohlson Model 403\u003c\/p\u003e \u003cp\u003e19.4 Behavioural Bias in Estimates of the Ohlson Model 404\u003c\/p\u003e \u003cp\u003e19.4.1 Inferring Value from Accounting Data: Fair Values versus Historic Costs 405\u003c\/p\u003e \u003cp\u003e19.4.2 The Three Levels of Fair Value 406\u003c\/p\u003e \u003cp\u003e19.4.3 Some Implicit Trade-Offs in Fair-Value Accounting 406\u003c\/p\u003e \u003cp\u003e19.5 Conclusion and Summary 407\u003c\/p\u003e \u003cp\u003eAppendix A: Mark-to-Market Accounting at Enron – A Case Study 407\u003c\/p\u003e \u003cp\u003eAppendix B: Solving for Price in Terms of Abnormal Earnings and Non-Accounting Information only (Equation (19.7)) 423\u003c\/p\u003e \u003cp\u003eQuestions 425\u003c\/p\u003e \u003cp\u003eNotes 425\u003c\/p\u003e \u003cp\u003eReferences 426\u003c\/p\u003e \u003cp\u003e\u003cb\u003e20 Conclusion 427\u003c\/b\u003e\u003c\/p\u003e \u003cp\u003eIndex 431\u003c\/p\u003e \u003cb\u003eWilliam Forbes\u003c\/b\u003e is Professor of Accounting and Finance in the Business School at Loughborough University, UK.  He has previously held positions at University of Glasgow, University of Manchester, University College of North Wales in Bangor and the University of Exeter.  In this book, a splendid synthesis of recent research, William Forbes lays out the fundamentals of behavioral finance. Behavioral finance is still a young field, but it has revolutionized our understanding of how financial decisions are made. Forbes illuminates the immense importance of the human element to financial theory and practice.”  \u003cp\u003e\u003cb\u003eWerner De Bondt, Professor and Director, Richard H. Driehaus Center for Behavioral Finance, DePaul University, Chicago, IL, USA.\u003c\/b\u003e\u003c\/p\u003e \u003cp\u003eBehavioural finance has moved from the confines of technical journals to being offered as a course on graduate and undergraduate degrees in finance. What was missing was a comprehensive textbook introduction to this important and growing field. William Forbes’ book fills in this gap. It is a superb synthesis of the theoretical and empirical literature on behavioural finance. It provides a self-contained and broad-based introduction to the various facets of this sub-field - an outstanding textbook that should be on every reading list.\u003c\/p\u003e \u003cp\u003e\u003cb\u003eProfessor Abhay Abhyankar, Baillie Gifford Chair of Financial Markets, University of Edinburgh Business School, UK.\u003c\/b\u003e\u003c\/p\u003e \u003cp\u003e'Engrossing, rigorous and comprehensive - this book will be a great basis for teaching courses in behavioural finance'\u003c\/p\u003e \u003cp\u003e\u003cb\u003eRobert Hudson, Professor of Finance, Newcastle University Business School, UK.\u003c\/b\u003e\u003c\/p\u003e \u003cul type=\"disc\"\u003e \u003cli\u003e\n\u003ci\u003eBehavioural Finance\u003c\/i\u003e meets the growing demand for an introductory level textbook that can be used by students on advanced undergraduate and postgraduate courses.\u003c\/li\u003e \u003cli\u003eProvides a range of UK and European examples, whereas most of the existing books include primarily examples from North America.\u003c\/li\u003e \u003cli\u003eExamples of FTSE 100 and S\u0026amp;500 companies provide the reader with an appreciation of everyday problems faced by finance professionals.\u003c\/li\u003e \u003c\/ul\u003e \u003cp\u003eThere will be a website accompanying the book \u003ca href=\"http:\/\/www.wileyeurope.com\/college\/forbes\"\u003ewww.wileyeurope.com\/college\/forbes\u003c\/a\u003e  with PowerPoint slides, spreadsheets and a document containing web links and References.\u003c\/p\u003e","brand":"Wiley","offers":[{"title":"Default Title","offer_id":47988800848101,"sku":"NP9780470028049","price":63.5,"currency_code":"USD","in_stock":false}],"thumbnail_url":"\/\/cdn.shopify.com\/s\/files\/1\/1842\/7735\/files\/9780470028049.jpg?v=1761781641","url":"https:\/\/k12savings.com\/products\/behavioural-finance-isbn-9780470028049","provider":"K12savings","version":"1.0","type":"link"}