Quantitative Behavioral Finance
This is the marriage of psychology and finance in the world of economics. Its main purpose is to attempt how people make choices and arrive at decisions concerning their finances. An example is the “herd mentality” (which gave rise to the contrasting terms of “bull run” and “bear market”) in financial markets which often ignore the underlying market fundamentals. This is clearly seen during a bank run when a nervous depositor attempts to withdraw his savings although his bank is essentially financially sound. That jittery depositor will withdraw his money despite assurances from bank management that nothing is fundamentally wrong with the bank. This irrational behaviour can lead to panic which supersedes all levels of reason. A landmark study called as the “Prospect Theory” helped to integrate cognitive psychological techniques into the field of economics and finance. These behavioural models try to dissect the causes of certain events such as the Great Depression during the 1920s in which people tended to act against their own best interests. In fact, there are people who defy market trends and either profit handsomely or lose enormously. Irrational exuberance can be translated as overconfidence while the reverse side is simply known as panic when unreasonable fear takes over the intelligence.
Finance Monitoring Behavioral
Site Name: Behavioural Capital
Domain Name: http://www.behavioral-capital.com/quantitative_behavioral_finance.html
A good site that discusses some of the arcane terms in investment finance. It includes such topics as the different investment objectives of long-term pension funds from the short-term hedge funds, why “tops” are vastly different from “bottoms” and the role of information in stock trading.
Site Name: Prospect Theory
Domain Name: http://prospect-theory.behaviouralfinance.net
This is a site intended for deeper discussion of the Prospect Theory which is the basic theory going around in academic circles concerning behavioural finance. This is the second most cited academic paper in the area of economics and is a critique of the earlier expected utility theory in economics.
Site Name: Research-Finance.com
Domain Name: http://www.research-finance.com
The author attempts to rationalize all the Internet sources on anything finance- related. This is necessary due to the proliferation of so many academic articles and working papers on finance that it is often hard to keep track of all of them.