Behavioral finance is motivated by various financial anomalies that cannot be explained by traditional economic and finance theories. The course introduces extensive experimental evidence on psychological bias in peoples’ belief and preferences. It also employs the theory of limits to arbitrage to analyze why irrationality lives. It further discusses the implication of behavioral biases on the financial market, including the aggregate stock market, cross-section of stock returns, individual investors, and corporate finance.

CILO-1: Describe why irrational behavior in finance exist. CILO-2: Identify various behavioral finance issues in the securities market. CILO-3: Analyze how behavioral aspects of investors would affect conventional finance theories.